Multiscale Market Integration and Nonlinear Granger Causality between Natural Gas Futures and Physical Markets

Cuilin Li, Ya-Juan Du, Qiang Ji and Jiang-bo Geng
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Cuilin Li: School of Tourism Management, Xinjiang University of Finance and Economics, Xinjiang 830012, China
Ya-Juan Du: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
Jiang-bo Geng: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China

Sustainability, 2019, vol. 11, issue 19, 1-23

Abstract: This paper comprehensively analyzed the price integration of the U.S. natural gas futures market and its physical markets. The analyses were conducted in the form of graphics using the ensemble empirical mode decomposition (EEMD) method and minimum spanning trees with various horizons. Our findings indicated that the network structures of the minimum spanning trees of the gas futures and physical markets are the same on different time scales. The citygate returns were always the core of the physical gas markets. In addition, the gas futures and physical markets were highly integrated on different time scales. Moreover, our findings showed that at the original data level, unidirectional linear and nonlinear causalities from gas futures to physical returns exist. Specifically, the relationships between futures and physical gas returns were not constant across various time scales. In the long term, futures gas returns had only a linear causality with the citygate, commercial, and industry gas returns, and a unidirectional, nonlinear causality with residential gas returns.

Keywords: natural gas market; multiscale analysis; ensemble empirical mode decomposition; minimum spanning tree; nonlinear Granger causality test (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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