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Connectedness between the Crude Oil Futures and Equity Markets during the Pre- and Post-Financialisation Eras

Sania Wadud, Robert D. Durand and Marc Gronwald

No 9202, CESifo Working Paper Series from CESifo

Abstract: This paper examines the effect of financialisation of futures markets has on the relationship between crude oil futures and equities by using the VAR-DCC-GARCH model. Specifically, by accounting for the systematic patterns of commodity price volatility, namely, seasonality and maturity effects for the pre-financialisation (1993-2003) and post-financialisation (2004-2019) period. While speculation that reflects non-commercial investors’ activity is found to have a negative impact on crude oil futures’ volatility before the financialisation period, open interest as a measure of liquidity has a negative effect after 2004. The finding indicates weakening seasonality in crude oil futures and diminishing Samuelson maturity effect i.e. volatility of the contract increases as it nears to expiration since financialisation. This confirms the importance of accounting for volatility dynamics while contributing to financialisation debate.

Keywords: financialisation; volatility dynamics; Samuelson hypothesis; correlation; seasonality (search for similar items in EconPapers)
JEL-codes: C32 G12 G15 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-isf and nep-rmg
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