2008
DOI: 10.1016/j.eneco.2008.03.006
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The relationship between crude oil spot and futures prices: Cointegration, linear and nonlinear causality

Abstract: The present study investigates the linear and nonlinear causal linkages between daily spot and futures prices for maturities of one, two, three and four months of West Texas Intermediate (WTI) crude oil. The data cover two periods October 1991-October 1999 and November 1999-October 2007, with the latter being significantly more turbulent. Apart from the conventional linear Granger test we apply a new nonparametric test for nonlinear causality by Diks and Panchenko after controlling for cointegration. In additi… Show more

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Cited by 298 publications
(199 citation statements)
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References 30 publications
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“…The test reveals that there is a bidirectional causality effect between the futures (both modeled and not modeled) and spot prices for log-returns, although for the case of raw data the causality is unidirectional-from futures to spot prices. Our results are in accordance with several other papers (Silvapulle & Moosa [3]; Bekiros and Diks [6]; Alzahrani et al [15], among others), although in those publications the authors use futures contracts with different maturities (one, two, three, four and six months) instead of long-term futures obtained by a stochastic model and they used other different kinds of causality tests Note: *** indicates statistical significance at the 1% level. Table 5.…”
Section: Resultssupporting
confidence: 80%
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“…The test reveals that there is a bidirectional causality effect between the futures (both modeled and not modeled) and spot prices for log-returns, although for the case of raw data the causality is unidirectional-from futures to spot prices. Our results are in accordance with several other papers (Silvapulle & Moosa [3]; Bekiros and Diks [6]; Alzahrani et al [15], among others), although in those publications the authors use futures contracts with different maturities (one, two, three, four and six months) instead of long-term futures obtained by a stochastic model and they used other different kinds of causality tests Note: *** indicates statistical significance at the 1% level. Table 5.…”
Section: Resultssupporting
confidence: 80%
“…Most studies of the relationship between spot and long-term future prices on the crude oil market are based mainly on the estimation of Pearson's and Spearman's correlation coefficients, the cross-correlation function, cointegration theory (bi-and multivariate) or the use of generalized VAR or (G)ARCH models [3][4][5][6][7]. However, cointegration theory can only tackle short-run vs. long-run time horizons and the VAR and (G)ARCH approaches are sensitive to model specifications [8].…”
Section: Introductionmentioning
confidence: 99%
“…This implies that there is cointegration relationship between the crude oil spot and the various futures prices. In other word, there is a long run equilibrium relationship between the crude oil spot and futures prices in each case consistent with Bekiros and Diks (2008), Zhang and Wang (2013) and Chen et al (2014). The results also show significant long-run equilibrium relationship between futures contract for different maturities which is consistent with the findings of Hammoudeh et al (2003) and Kaufmann and Ullman (2009).…”
Section: Results Of the Cointegration Testsupporting
confidence: 81%
“…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: 65%
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