The Traditional Hedging Model Revisited with a Nonobservable Convenience Yield

Mellios, Constantin; Six, Pierre

doi:10.1111/j.1540-6288.2011.00312.x

Cited by 10 publications

(5 citation statements)

References 57 publications

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“…Our research is conceptually similar to Duan and Lin (2010), who ascribe the WTI/Brent spot price differential to crude oil convenience yields. In addition, futures prices incorporate the investor's belief regarding the value of the convenience yield (Mellios and Six, 2011). The convenience yield reflects market expectations about the future availability of crude oil.…”

Section: Review Of the Related Literaturementioning

confidence: 99%

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

Filippidis

Kizys

Filis

et al. 2019

IJBAAF

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This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of potential determinants at 1, 3 and 6 months to maturity contracts. To this end, we employ monthly data over the period 1993:1-2016:12 for a set of crude oil-market specific (convenience yield, consumption, production) and oil-futures market specific (open interest, trading volume) determinants. Our results can be outlined as follows. First, the WTI/Brent convenience yield spread can drive a wedge between the WTI and Brent oil futures prices for the nearby month and 3-month contracts. Second, the WTI/Brent oil production spread is a significant determinant for the 1-month, 3month and 6-month to maturity contracts, while the WTI/Brent oil consumption spread is significant for the 6-month contract. Third, the WTI/Brent open interest spread appears to influence the oil futures price variability between the WTI and Brent for the 3-month and 6month contracts, while the WTI/Brent trading volume spread lends predictive power for the 1-month and 3-month contracts. Fourth, the oil futures market does not appear to be globalised in every time period. We provide evidence of a regionalised oil futures market over the short-run. Fifth, our robustness analysis lends support to the above findings. The findings of this study provide valuable information to energy investors, traders and hedgers.

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Section: Review Of the Related Literaturementioning

confidence: 99%

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

Filippidis

Kizys

Filis

et al. 2019

IJBAAF

View full text Add to dashboard Cite

show abstract

“…They show that the spot-futures basis significantly affects the optimal hedge ratio estimation and hedging performance. A more recent study by Mellios and Six (2011) finds that the demand for hedging is highly associated with convenience yield.…”

Section: Feedback Trading With Arbitrage Opportunitiesmentioning

confidence: 99%

“…Therefore, similar to the basis, convenience yield can also be seen as a useful indicator of the futures price movement. Bertus et al (2009) and Mellios and Six (2011) show that convenience yield can affect hedging demand and optimal hedge ratio. In this section, we examine the sensitivity of our results to an alternative measure for arbitrage opportunities i.e.…”

Section: Alternative Measure Of Arbitrage Opportunitiesmentioning

confidence: 99%

Arbitrage opportunities and feedback trading in emissions and energy markets

Chau

Kuo²,

Shi

2015

Journal of International Financial Markets, Institutions and Mo

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. This finding is consistent with the notion that institutional investors are less susceptible to pursuing feedback-style investment strategies. In further analysis, our results show that the intensity of feedback trading is significantly related to the level of arbitrage opportunities, and that the significance of such relationship depends on the market regimes.

show abstract

Section: Review Of the Related Literaturementioning

confidence: 99%

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

Filippidis

Filis

Floros

et al. 2019

IJBAAF

View full text Add to dashboard Cite

This study examines the globalisation-regionalisation hypothesis in the WTI/Brent crude oil futures price differential by considering a set of the potential determinants at 1, 3 and 6 months to maturity contracts. To this end, we employ monthly data over the period 1993:1-2016:12 for a set of crude oil-market specific (convenience yield, consumption, production) and oil-futures market specific (open interest, trading volume) determinants. Our results can be outlined as follows. First, the WTI/Brent convenience yield spread can drive a wedge between the WTI and Brent oil futures prices for the nearby month and 3-month contracts. Second, the WTI/Brent oil production spread is a significant determinant for the 1-month, the 3-month and the 6-month to maturity contracts, while the WTI/Brent oil consumption spread is significant for the 6-month contract. Third, the WTI/Brent open interest spread appears to influence the oil futures price variability between the WTI and Brent for the 3-month and the 6-month contracts, while the WTI/Brent trading volume spread lends predictive power for the 1-month and the 3-month contracts. Fourth, the oil futures market does not appear to be globalised in every time period. We provide evidence of a regionalised oil futures market in the short-run horizon. Fifth, our robustness analysis lends support to the above findings. The findings of this study provide valuable information to energy investors, traders and hedgers.

show abstract

The Traditional Hedging Model Revisited with a Nonobservable Convenience Yield

Cited by 10 publications

References 57 publications

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

Arbitrage opportunities and feedback trading in emissions and energy markets

The WTI/Brent oil futures price differential and the globalisation-regionalisation hypothesis

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