Dynamic relationships between spot and futures prices. The case of energy and gold commodities

Mihaela Nicolau and Giulio Palomba ()

Resources Policy, 2015, vol. 45, issue C, 130-143

Abstract: According to the most common financial theories, the price of a futures contract is always influenced by the spot price of its underlying asset (the cost-of-carry model) or by the expected future spot price conditional on information set (the asset-pricing theory). The aim of this paper is to analyze the dynamic relationship between spot and futures prices, and to establish if there is the possibility of a valid “period by period” prediction of the futures price conditional on the prediction of the spot price, and vice-versa. The empirical analysis is conducted on the two most important energy commodities, crude oil and natural gas, and on gold, the most important commodity used for risk hedging and investment during financial turmoil, paying particular attention to the exogeneity issue. We estimate a battery of recursive bivariate VAR models over a sample of daily spot and futures prices, ranging from January 1997 to May 2014. Our results show that some interactions between spot and futures prices clearly exist and they mainly depend on commodity type and futures contracts maturity. Thus, a strong exogeneity operates in the case of the natural gas, while this is not the case for the crude oil, where the exogeneity generally is weak and depends on the contract maturity. On the gold market the results show no possibility of a valid forecasting between spot and futures prices.

Keywords: Energy commodities; Spot and futures prices; Recursive estimation; Exogeneity (search for similar items in EconPapers)
JEL-codes: C32 C58 G13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:45:y:2015:i:c:p:130-143

DOI: 10.1016/j.resourpol.2015.04.004

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