Details
| Original language | English |
|---|---|
| Article number | 104743 |
| Number of pages | 46 |
| Journal | Energy Economics |
| Volume | 88 |
| Early online date | 21 Mar 2020 |
| Publication status | Published - May 2020 |
Abstract
Keywords
- Macro-economy, Oil market, Term structure, Volatility
ASJC Scopus subject areas
- Biochemistry, Genetics and Molecular Biology(all)
- Structural Biology
- Biochemistry, Genetics and Molecular Biology(all)
- Biochemistry
- Biochemistry, Genetics and Molecular Biology(all)
- Molecular Biology
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Energy(all)
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In: Energy Economics, Vol. 88, 104743, 05.2020.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Economic Determinants of Oil Futures Volatility
T2 - A Term Structure Perspective
AU - Kang, Boda
AU - Nikitopoulos, Christina Sklibosios
AU - Prokopczuk, Marcel
N1 - Funding Information: We thank the editor Richard S.J. Tol, two anonymous reviewers, the late Carl Chiarella, Susan Thorp, Erik Schl?gl, Yubo Tao (discussant), and Isabel Figuerola-Ferretti (discussant) for useful comments at various stages of this research. We also thank seminar participants at the 2019 Sydney Financial Mathematics Workshops (Sydney), the Commodity and Energy Markets Conference 2019 (Pittsburgh), the 3rd Australasian Commodity Markets 2019 conference (Sydney) and the UTS Finance Department internal research seminars and showcase events for fruitful discussions and suggestions. Special thanks go to Mesias Alfeus and Nihad Aliyev for assisting with data management and numerics. Australian Research Council financial support (DP 130103315) is gratefully acknowledged. The usual disclaimer applies.
PY - 2020/5
Y1 - 2020/5
N2 - To assess the economic determinants of oil futures volatility, we firstly develop and estimate a multi-factor oil futures pricing model with stochastic volatility that is able to disentangle long-term, medium-term and short-term variations in commodity markets volatility. The volatility estimates reveal that in line with theory, the volatility factors are unspanned, persistent and carry negative market price of risk, while crude oil markets are becoming more integrated with financial markets. After 2004, short-term volatility is driven by industrial production, term and credit spreads, the S&P 500 and the US dollar index, along with the traditional drivers including hedging pressure and VIX. Medium-term volatility is consistently related to open interest and credit spreads, while after 2004 oil sector variables such as inventory and consumption also impact this part of the term structure. Interest rates mostly matter for long-term futures price volatility.
AB - To assess the economic determinants of oil futures volatility, we firstly develop and estimate a multi-factor oil futures pricing model with stochastic volatility that is able to disentangle long-term, medium-term and short-term variations in commodity markets volatility. The volatility estimates reveal that in line with theory, the volatility factors are unspanned, persistent and carry negative market price of risk, while crude oil markets are becoming more integrated with financial markets. After 2004, short-term volatility is driven by industrial production, term and credit spreads, the S&P 500 and the US dollar index, along with the traditional drivers including hedging pressure and VIX. Medium-term volatility is consistently related to open interest and credit spreads, while after 2004 oil sector variables such as inventory and consumption also impact this part of the term structure. Interest rates mostly matter for long-term futures price volatility.
KW - Macro-economy
KW - Oil market
KW - Term structure
KW - Volatility
UR - http://www.scopus.com/inward/record.url?scp=85083298955&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2020.104743
DO - 10.1016/j.eneco.2020.104743
M3 - Article
AN - SCOPUS:85083298955
VL - 88
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
M1 - 104743
ER -