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Modelling futures price volatility in energy markets: Is there a role for financial speculation?

Matteo Manera (), Marcella Nicolini and Ilaria Vignati

Energy Economics, 2016, vol. 53, issue C, 220-229

Abstract: This paper models volatility in four energy futures markets, adopting GARCH models. The variance equation is enriched with alternative measures of speculation, based on CFTC data: the market share of non-commercial traders, the Working's T index, and the percentage of net long positions of non-commercials over total open interest in future markets. It also includes a control for market liquidity. We consider four energy commodities (light sweet crude oil, heating oil, gasoline and natural gas) over the period 2000–2014, analysed at weekly frequency. We find that speculation presents a negative and significant sign. The robustness exercise shows that: i) results remain unchanged through different model specifications (GARCH-in-mean, EGARCH, and TARCH); ii) results are robust to different specifications of the mean and variance equation.

Keywords: Commodities futures markets; Speculation; Working's T; GARCH models (search for similar items in EconPapers)
JEL-codes: C32 G13 Q43 (search for similar items in EconPapers)
Date: 2016
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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