Heterogeneous Causal Relationships between Spot and Futures Oil Prices: Evidence from Quantile Causality Analysis

Xianfang Su, Huiming Zhu and Xinxia Yang
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Xianfang Su: School of Big Data Application and Economics, Guizhou University of Finance and Economics, Guiyang 550004, China
Huiming Zhu: College of Business Administration, Hunan University, Changsha 410082, China
Xinxia Yang: School of Mathematics and Statistics, Guizhou University of Finance and Economics, Guiyang 550004, China

Sustainability, 2019, vol. 11, issue 5, 1-17

Abstract: The causal relationships between spot and futures crude oil prices have attracted the attention of many researchers in the past several decades. Most of the studies, however, do not distinguish among the various oil market situations in analyses of linear and nonlinear causalities. In light of the fact that a booming or depressing oil market produces heterogeneous investment behaviors, this study applied a quantile causality framework to capture different causalities across various quantile levels and found that the causal relationships between crude oil spot and futures prices significantly derive from tail quantile intervals and appear as heterogeneous effects. Before the Iraq War, crude oil spot and futures prices were mutually Granger-caused at lower quantile levels, and only futures prices led spot prices at upper quantile levels. Since the war, a clear bidirectional causality has existed at the upper quantile levels, but only in lower quantile levels have futures prices led spot prices. These results provide useful information to investors using crude spot or futures prices to hedge or manage downside or upside risks in their portfolios.

Keywords: crude oil market; futures price; heterogeneous relationship; quantile 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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