Linear and non-linear Granger causality between oil spot and futures prices: A wavelet based test

Alzahrani, Mohammed; Masih, Mansur; Al‐Titi, Omar

doi:10.1016/j.jimonfin.2014.07.001

Cited by 78 publications

(54 citation statements)

References 63 publications

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“…Secondly, hedgers can minimise unsystematic risk because the futures contracts prices contain available information about market conditions and therefore they can avoid adopting expensive hedging strategies since the crude oil futures market have efficient price that can determine spot price. Thirdly, we can say that speculative activities rather than market fundamentals may be the driving factors in changing oil prices because innovations appear first in crude oil futures prices as suggested by Alzahrani (2014) and Kaufmann and Ullman (2009). Finally, the results support the arguments that the futures market should respond first to pricing information before the spot market given its lower transaction costs, less friction and flexibility of short selling (Schwarz and Szakmary, 1994;Figuerola-Ferretti and Gonzalo, 2010;Huang et al, 2009) and high liquidity (Foster, 1994).…”

Section: Tablesupporting

confidence: 56%

“…Table 3 presents the results of the causality test estimates which show bidirectional causality between the spot and futures prices at one and three-month maturities in the long run. This implies that changes in spot price and futures price can causes changes in each other's price consistent with Bekiros and Diks (2008), Lee and Zeng (2011) and Alzahrani et al (2014). The results suggest that the crude oil spot and futures prices respond to new pricing information instantaneously and therefore perform an equal contribution to price discovery at the different maturities.…”

Section: Results Of the Cointegration Testmentioning

confidence: 75%

“…They find that futures oil prices significantly lead spot oil prices in the lowest quantile while under the long futures contracts maturing in 2, 3, and 4 months, futures oil prices do not lead spot prices in high quantiles, except for the short one-month contracts. Alzahrani et al (2014) using wavelet transformed spot and futures oil prices find bidirectional causality between WTI spot and one-month futures prices at different time scales, under linear and nonlinear causality assumptions and during the recent financial crisis supporting the contribution of both markets to price discovery. Huang et al (2009) using a multivariate threshold autoregressive model find unidirectional linear and nonlinear causality from WTI futures price to spot price over the period 1986 to 2007.…”

Section: Literature Reviewmentioning

confidence: 88%

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Price discovery and risk transfer in the Brent crude oil futures market

Abdullahi

Muhammad

2016

IJFMD

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This paper examines price discovery and risk transfer functions in the Brent crude oil futures market. The results show that the spot and futures prices play a significant role in price discovery but the contribution of futures price are higher at different maturities. Second, the results of cross-contract analysis indicate that futures contract with longer maturity lead price discovery in the oil market. Finally, the crude oil futures price does not perform the risk transfer function in interaction with the spot price in various maturities and between different futures contracts. The findings have important implications for market participants and policy makers.

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Section: Tablesupporting

confidence: 56%

Section: Results Of the Cointegration Testmentioning

confidence: 75%

Section: Literature Reviewmentioning

confidence: 88%

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Price discovery and risk transfer in the Brent crude oil futures market

Abdullahi

Muhammad

2016

IJFMD

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“…They do not take into account the causal relationship between oil spot and futures prices. This task was tackled more recently by Alzahrani et al [15] in the first combined study that mixes wavelet analysis and non-linear causality. Alzahrani et al [15] find consistent bidirectional causality between spot and futures oil markets on different time scales.…”

Section: The Wavelet Methodologymentioning

confidence: 99%

“…Inspired by Chang and Lee [12] and Alzahrani et al [15], in this paper we contribute to the literature on the lead-lag relationship between spot and futures crude oil prices in the following way. We use all the futures contracts of each day and we estimate the long-term equilibrium price to which the price of the futures markets when the maturity period increases in such a way that our sample has futures price quotes with a maximum maturity of 8.92 years.…”

Section: Introductionmentioning

confidence: 99%

Analyzing Crude Oil Spot Price Dynamics versus Long Term Future Prices: A Wavelet Analysis Approach

Polanco-Martínez

Abadie

2016

Energies

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Abstract:The West Texas Intermediate (WTI) spot price shows high volatility and in 2014 and 2015 when quoted prices declined sharply, long-term prices in future markets were less volatile. These prices are different and diverge depending on how they process fundamental and transitory factors. US tight oil production has been a major innovation with significant macroeconomic effects. In this paper we use WTI spot prices and long-term futures prices, the latter calculated as the expected value with a stochastic model calibrated with the futures quotes of each sample day. These long-term prices are the long-term equilibrium value under risk neutral measurement. In order to analyze potential time-scale relationships between spots and future, we perform a wavelet cross-correlation analysis using a novel wavelet graphical tool recently proposed. To check the direction of the causality, we apply non-linear causality tests to raw data and log returns as well as to the wavelet transform of the spot and futures prices. Our results show that in the spot and futures markets for the period 24 February 2006-2 April 2016 there is a bi-directional causality effect for most time scales (from intra-week to biannual). This suggests that spot and futures prices react simultaneously to new information.

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Efficiency in the Atlantic salmon futures market

Andersen¹,

Lange

2021

Journal of Futures Markets

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In this study, we examine the efficiency and unbiasedness of Atlantic salmon futures prices. Market participants use the Fish Pool futures market to hedge the increasingly volatile salmon spot price. We further examine the futures market's predictive accuracy, comparing it to a variety of proprietary prediction models. Our results show that futures prices are efficient and unbiased in the long‐run, while being biased and inefficient in the short‐run. Moreover, we find that futures prices provide an adequate price discovery function for most contracts, while suffering from magnified risk premiums due to few noncommercial traders.

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Linear and non-linear Granger causality between oil spot and futures prices: A wavelet based test

Cited by 78 publications

References 63 publications

Price discovery and risk transfer in the Brent crude oil futures market

Price discovery and risk transfer in the Brent crude oil futures market

Analyzing Crude Oil Spot Price Dynamics versus Long Term Future Prices: A Wavelet Analysis Approach

Efficiency in the Atlantic salmon futures market

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