Volatility of Oil Prices
Volatility of Oil Prices

Author: Mr.Peter Wickham

Publisher: International Monetary Fund

Published: 1996-08-01

Total Pages: 20

ISBN-13: 1451954727

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This paper examines the behavior of crude oil prices since 1980, and in particular the volatility of these prices. The empirical analysis covers “spot” prices for one of the key internationally traded crudes, namely Dated Brent Blend. A GARCH (generalized autoregressive conditional heteroscedastic) model, which allows the conditional variance to be time-variant, is estimated for the period which includes the oil price slump of 1986 and the surge in prices in 1990 as a result of the Iraqi invasion of Kuwait. The paper also discusses the growth of futures and derivative markets and the dynamic links between spot and futures markets.

Oil Price Volatility and the Role of Speculation
Oil Price Volatility and the Role of Speculation

Author: Samya Beidas-Strom

Publisher: International Monetary Fund

Published: 2014-12-12

Total Pages: 34

ISBN-13: 1498333486

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How much does speculation contribute to oil price volatility? We revisit this contentious question by estimating a sign-restricted structural vector autoregression (SVAR). First, using a simple storage model, we show that revisions to expectations regarding oil market fundamentals and the effect of mispricing in oil derivative markets can be observationally equivalent in a SVAR model of the world oil market à la Kilian and Murphy (2013), since both imply a positive co-movement of oil prices and inventories. Second, we impose additional restrictions on the set of admissible models embodying the assumption that the impact from noise trading shocks in oil derivative markets is temporary. Our additional restrictions effectively put a bound on the contribution of speculation to short-term oil price volatility (lying between 3 and 22 percent). This estimated short-run impact is smaller than that of flow demand shocks but possibly larger than that of flow supply shocks.

Fundamentals, Speculation, and the Pricing of Crude Oil Futures
Fundamentals, Speculation, and the Pricing of Crude Oil Futures

Author: Thomas Hoehl

Publisher: GRIN Verlag

Published: 2011-11

Total Pages: 89

ISBN-13: 3656047715

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Master's Thesis from the year 2011 in the subject Economics - Finance, grade: 8,0, Maastricht University (School of Business and Economics), language: English, abstract: This study finds that while a large part of the variation in crude oil futures prices is driven by fundamental factors, financial investment and speculation has the potential to aggravate reactions to changing fundamental variables and furthermore move prices on its own. The evidence is gathered by performing linear regressions and Granger Causality tests on futures returns, position data of different categories of futures traders on the New York Mercantile Exchange and proxies for relevant fundamental factors such as equity and exchange rate returns gathered from August 2006 to December 2010. While higher prices for crude oil naturally come along with increasing physical demand and finite world supply, future regulation might temper market volatility and guarantee that prices reflect a sustainable physical market equilibrium. The study also gives an overview of commodity market regulation and position limits on futures markets.

Maturity Effects in Futures Markets
Maturity Effects in Futures Markets

Author: Rita Madarassy Akin

Publisher:

Published: 2003

Total Pages: 42

ISBN-13:

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This essay examines the volatility dynamics of the financial futures returns. Samuelson (1965) demonstrated theoretically that the conditional variance of changes in futures prices should increase as the time-to-maturity decreases. Interestingly, the empirical evidence on the Samuelson hypothesis is mixed. This essay revisits that issue, applying a unified GARCH framework to a unique data set of daily data, spanning 19 years up to 2000, and eleven types of financial contracts (currencies, Samp;P500, Nikkei 225, Eurodollar, Treasury Bills). The conditional variance equation is augmented by time-to-maturity, open interest and trading volume variables. I detect evidence for a role of the time-to-maturity in currency futures, and mixed evidence in equity index and interest rate futures. Lagged trading volume and open interest are positively related to volatility in most of these financial futures but they do not fully account for the estimated conditional variance.

Trading in Oil Futures and Options
Trading in Oil Futures and Options

Author: Sally Clubley

Publisher: CRC Press

Published: 1998-10-15

Total Pages: 160

ISBN-13: 9780849305191

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Trading in Oil Futures and Options, thoroughly revised and updated, provides practical advice on when to make the decision to use futures; choosing a broker; and the mechanics of futures trading. This new edition has been extended to include all oil market trading instruments, and also gas and electricity derivatives. Updates the only comprehensive guide to oil futures and options Presents an international outlook on the topic Features a chapter on technical analysis and an appendix on the costs of futures trading

Effect of Futures Trading on Spot Market Volatility
Effect of Futures Trading on Spot Market Volatility

Author: Brajesh Kumar

Publisher:

Published: 2011

Total Pages: 25

ISBN-13:

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This study investigates the relationship between futures trading activity and spot market volatility for agricultural, metal, precious metals and energy commodities in Indian commodity derivatives market. This article contributes to the debate whether the futures trading in Indian commodity futures market stabilizes or destabilizes spot market. We explore this issue by modeling contemporaneous as well as dynamic relationship between spot volatility and futures trading activity including trading volume (speculative/day trading) and open interest (hedging). Following Bessembinder and Senguin (1992), we examine contemporaneous relationship through augmented GARCH model in which spot volatility is modeled as GARCH (1,1) process and trading activity is used as explanatory variable. We also decompose futures trading volume and open interest series into expected and unexpected component. The lead-lag relationship between spot price volatility and futures trading volume and open interest is investigated through VAR model. Granger causality tests, forecast error variance decompositions and impulse response function are used to understand the dynamic relationship between these variables. We found that both expected and unexpected futures trading volume affects contemporaneous spot volatility positively. However, in case of agricultural commodities only unexpected volume affects the contemporaneous spot volatility. Granger causality tests, forecast error variance decompositions and impulse response function confirm that the lagged unexpected volatility causes spot price volatility for all commodities. The effect of speculative/day trading activity measured by trading volume on spot market volatility is positive. However, hedging activity measured by open interest does not show significant effect on spot market volatility. We do not find any effect of spot volatility on futures trading activity for most of the commodities.