Information Flows across the Futures Term Structure: Evidence from Crude Oil Prices

Delphine Lautier, Franck Raynaud and Michel Robe
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Delphine Lautier: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Franck Raynaud: UNIL - Université de Lausanne = University of Lausanne

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Abstract: We apply the concepts of mutual information and information flows and we built directed graphs to investigate empirically the propagation of price fluctuations across a futures term structure. We focus on price relationships for North American crude oil futures because this key market experienced several structural shocks between 2000 and 2014: financialization (starting in 2003), infrastructure limitations (in 2008-2011) and regulatory changes (in 2012-2014). Wefind large variations over time in the amount of information shared by contracts with different maturities. The mutual information increased substantially starting in 2004 but fell back sharply in 2012-2014. In the crude oil space, our findings point to a possible re-segmentation of the futures market by maturity in 2012-2014. This raises questions about the causes of market segmentation. In addition, although on average short-dated contracts (up to 6 months) emit more information than backdated ones, a dynamic analysis reveals that, after 2012, similar amounts of information flow backward as flow forward along the futures maturity curve. Moreover, the directions of the transfers between pairs of maturities become drastically different. This has implications for the Samuelson effect.

Keywords: Mutual information; Market integration; Shocks propagation; Information flows; Directed graphs; Term structure; Futures; Crude oil; WTI (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ene and nep-knm
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Published in AFFI 34th International Conference, May 2017, Valence, France

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