The time-varying spillover effect between WTI crude oil futures returns and hedge funds

Yue-Jun Zhang () and Yao-Bin Wu

International Review of Economics & Finance, 2019, vol. 61, issue C, 156-169

Abstract: To capture the relationship change between WTI crude oil returns and hedge funds in recent years, the linear and nonlinear Granger causality test approaches and Hong's time-varying information spillover statistics are employed based on the data from 2006 to 2017. The empirical results indicate that, first, hedge funds' net positions may Granger cause crude oil futures returns in the linear manner but the nonlinear relationship appears weaker. Second, both in the linear and nonlinear manners, the influence of crude oil futures prices has been evidently strengthened when they experience high volatility whilst the influence of hedge funds' net positions appears stronger only when crude oil futures prices rise substantially. Finally, hedge funds play an important role in pushing up crude oil price bubbles which are responsible for the crash of crude oil prices in 2008, but the crash of oil prices in 2014 is more attributed to market fundamentals.

Keywords: Crude oil futures; DCOT reports; Hedge funds; Time-varying granger causality (search for similar items in EconPapers)
JEL-codes: G15 O16 Q01 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:61:y:2019:i:c:p:156-169

DOI: 10.1016/j.iref.2019.02.006

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