The influence of investors’ expectations on oil prices

Bogdan Potanin and Juri Trifonov ()
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Juri Trifonov: HSE University, Moscow, Russian Federation

Applied Econometrics, 2021, vol. 63, 76-90

Abstract: This study applies various modifications of the GARCH-M process to model oil prices considering both the expectations of the investors and the risk premium. Futures contracts prices and volatility are used as a proxy for investors’ expectations and risk premium correspondingly. The advantage of the proposed approach is that the risk premium is modeled without accounting for exogenous factors, the selection of which, based on the literature, may be complicated. The results of the econometric analysis provide statistical evidence that volatility has a significant effect on the oil price, which justifies the usage of volatility as an indicator of the risk premium in the futures prices.

Keywords: oil pricing; agents’ expectations; futures contracts; endogenous volatility; risk premium; GARCH-M; structural breaks; semi-nonparametric methods. (search for similar items in EconPapers)
JEL-codes: C58 G17 Q47 (search for similar items in EconPapers)
Date: 2021
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