A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil

Baumeister, Christiane; Kilian, Lutz

doi:10.2139/ssrn.2499484

Cited by 46 publications

(64 citation statements)

References 28 publications

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“…This is not necessarily the case. Recent work by Baumeister and Kilian (2014d) shows that there is a time-varying risk premium in oil futures prices that drives a wedge between the oil futures price and the market expectation of the oil price, especially at longer horizons.…”

Section: What Did the Real-time Forecasting Model Fail To Predict?mentioning

confidence: 99%

Understanding the Decline in the Price of Oil Since June 2014

Baumeister

Kilian

2015

SSRN Journal

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Section: What Did the Real-time Forecasting Model Fail To Predict?mentioning

confidence: 99%

Understanding the Decline in the Price of Oil Since June 2014

Baumeister

Kilian

2015

SSRN Journal

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“…Moreover, the first column of Table 2 shows that the futures-based forecast has systematically higher MSPE than the no-change forecast. The high MSPE of these forecasts does not come as a surprise given recent evidence in favor of a time-varying risk premium in the market for crude oil (see Baumeister and Kilian 2014b). It would not be surprising if there were such as risk premium in the gasoline market as well.…”

Section: Forecasts Based On Spot and Futures Market Pricesmentioning

confidence: 87%

Inside the Crystal Ball: New Approaches to Predicting the Gasoline Price at the Pump

2015

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“…Baumeister and Kilian (2016a) showed that this expectation may be inferred from the prices of oil futures contracts with the help of recently proposed term-structure models of commodity futures markets (see Hamilton and Wu 2014). These models generate an estimate of the time-varying risk premium in the futures market.…”

Section: This Paper Quantifies To What Extent Changes In the Ethanol mentioning

confidence: 99%

“…For the expectations estimates based on the HW model to be credible, it is necessary to demonstrate that these estimates are more accurate than the alternatives outlined above (see Baumeister and Kilian 2016a analysis are expressed as ratios relative to the corresponding MSPE of the no-change prediction.…”

Section: Data and Estimation Periodmentioning

confidence: 99%

Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

Baumeister

Ellwanger

Kilian

2017

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It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. We utilize a recently proposed methodology to estimate the market's expectations of the prices of ethanol, unfinished motor gasoline and crude oil at horizons from three months to one year. We quantify the extent to which price changes were anticipated by the market, the extent to which they were unanticipated, and how the risk premium in these markets has evolved. We show that the Renewable Fuel Standard (RFS) is likely to have increased ethanol price expectations by as much $1.45 in the year before and in the year after the implementation of the RFS had started. Our analysis of the term structure of expectations provides support for the view that a shift in ethanol storage demand starting in 2005 caused an increase in the price of ethanol. There is no conclusive evidence that the tightening of the RFS in 2008 shifted market expectations, but our analysis suggests that policy uncertainty about how to deal with the blend wall raised the risk premium in the ethanol futures market in mid-2013 by as much as 50 cents at longer horizons. Finally, we present evidence against a tight link from ethanol price expectations to corn price expectations and hence to storage demand for corn in 2005-06. JEL Code: Q18, Q28, Q42, Q58

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A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil

Cited by 46 publications

References 28 publications

Understanding the Decline in the Price of Oil Since June 2014

Understanding the Decline in the Price of Oil Since June 2014

Inside the Crystal Ball: New Approaches to Predicting the Gasoline Price at the Pump

Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol?

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