Do oil spot and futures prices move together?
Chun-Ping Chang () and
Chien-Chiang Lee ()
Energy Economics, 2015, vol. 50, issue C, 379-390
This paper investigates the time-varying correlation and the causal relationship between crude oil spot and futures prices using a newly developed approach — wavelet coherency analysis in time–frequency domain. First, we find evidence of a long-run cointegration relationship between oil spot and futures prices. Moreover, the short-run causality is more significant in shorter maturity pairs versus longer maturity pairs in the vector error correction framework. Second, the results from wavelet coherency analysis show significant dynamic correlations between variables in the time–frequency domain. Third, the illustration of the phase-difference series around zero suggests that spot and futures prices contribute to the dynamics of the long-run equilibrium. Fourth and finally, we provide reasons for the structural changes in oil prices and also recommend investment strategies corresponding to risk diversification. Future studies focusing on the behavior of oil prices should consider the characteristics of the time–frequency space and lead–lag dynamic relationships.
Keywords: Oil price, spot and futures prices; Wavelet coherence; Phase-difference; Time–frequency domain (search for similar items in EconPapers)
JEL-codes: C32 C51 Q43 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:50:y:2015:i:c:p:379-390
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