2014
DOI: 10.1016/j.rfe.2014.09.001
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Business cycle, storage, and energy prices

Abstract: a b s t r a c tThis study examines the effect of the state of the economy and inventory on interest-adjusted bases and expected returns for five energy commodities. We find that interest-adjusted bases and returns have a business cycle pattern. Consistent with the theory of storage, demand shocks near business cycle peaks generate negative interestadjusted bases and positive returns. In recessions, the bases become positive, and the average returns are negative. Our regression results also show that the intere… Show more

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Cited by 11 publications
(9 citation statements)
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“…There is some evidence of positive excess returns among energy and metals, but not related to associated aggregate risk. Rather, these commodities have higher expected returns during business cycle peaks when inventory is low, supportive of the producer hedging theory (Fama and French [1988], Kucher and Kurov [2014], Duncombe et al [2018]). This goes in the opposite direction of what standard asset pricing theory would imply.…”
Section: Commodity Prices Do Not Pay Risk Premium On Aggregate Riskmentioning
confidence: 71%
“…There is some evidence of positive excess returns among energy and metals, but not related to associated aggregate risk. Rather, these commodities have higher expected returns during business cycle peaks when inventory is low, supportive of the producer hedging theory (Fama and French [1988], Kucher and Kurov [2014], Duncombe et al [2018]). This goes in the opposite direction of what standard asset pricing theory would imply.…”
Section: Commodity Prices Do Not Pay Risk Premium On Aggregate Riskmentioning
confidence: 71%
“…Our results are in line with the results of Fama and French (1988) 1 , Kucher and Kurov (2014) 2 , and Serletis and Shahmoradi (2006), where the standard deviation of the negative IABs is higher when compared to the standard deviation of the positive IABs. Some studies (Ahmadi et al, 2020;Fama & French, 1988;Kucher & Kurov, 2014;Stronzik et al, 2008) though did not conform to the theory, as the standard deviation of positive IABs are found to be higher in comparison to the standard deviation of the negative IABs. 2.…”
Section: Resultsmentioning
confidence: 91%
“…Two important methods to test the theory of storage are found in the literature: the direct method (Anand, 1999;Brennan, 1958;Cho & McDougall, 1990;Geman & Nguyen, 2005;Geman & Smith, 2013;Gray & Peck, 1981;Heaney, 1998;Kucher & Kurov, 2014;Lien, 1987;Omura et al, 2015;Telser, 1958;Thompson, 1986;Working, 1949) and the indirect method (Ahmadi et al, 2020;Brooks et al, 2013;Fama & French, 1987, 1988Serletis & Hulleman, 1994;Serletis & Shahmoradi, 2006;Stronzik et al, 2008). In the direct testing method, convenience yield is calculated by the spot and futures prices and modelled with the real inventory data of the commodity.…”
Section: Literature Reviewmentioning
confidence: 99%
“…The respective regressions follow the work done by Kucher and Kurov (2014), Omura and West (2015) and Fattouh (2009) and are represented as:…”
Section: Appendix D Methodology and Empirical Resultsmentioning
confidence: 99%