Wavelet domain correlation between the futures prices of natural gas and oil

Tonn, Victor Lux; Li, H.C.; McCarthy, Joseph

doi:10.1016/j.qref.2010.07.002

Cited by 34 publications

(15 citation statements)

References 16 publications

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“…The MODWT is used to compute wavelet variances, wavelet correlations (WC) and cross-correlations (WCC) of bivariate time series [13,14]. Several applications of the DWT and MODWT can be found in economic and financial literature (see e.g., [8,13,23,24]) and to a lesser extent in energy studies [25][26][27]. Nevertheless, to date the WCC (via MODWT) has not been widely used to study the correlation and co-movements between spot and long-term futures oil prices (though some exceptions are discussed below).…”

Section: The Wavelet Methodologymentioning

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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Section: The Wavelet Methodologymentioning

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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“…The Granger causality test and the VECM (Vector Error Correction Model) models are the most popular ones when examining the short-term relationship. Also, more recently, the wavelet approach is applied in linear and nonlinear causality testing (Tonn et al 2010;Alzahrani et al 2014; Polanco-Martínez and Abadie 2016) to study the short run relationship between crude oil prices. This technique uses cross-correlations to measure similarity between two signals at different scales.…”

Section: Spot and Futures Pricesmentioning

confidence: 99%

The Lead–Lag Relationship between Oil Futures and Spot Prices—A Literature Review

Zavadska

Morales

Coughlan

2018

IJFS

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Crude oil is the dominant energy resource worldwide. The focus of this paper is on its historical behaviour and subsequent implications for the global economy with an emphasis on the lead–lag relationship between spot and future prices. The paper examines the behaviour of oil spot and future prices and their determinants during periods of market uncertainty, particularly in the context of economic and financial crises. The analysis highlights a key controversy within the extant literature, as to whether spot or futures prices are the main crude oil price indicator. The literature review indicates that the lead–lag relationship is a dynamic one, especially during periods of sustained uncertainty, which leads to significant disagreements and incongruities among researchers regarding the price that plays a dominant role.

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“…Tonn and McCarty, 2010, for natural gas-crude oil interactions), or use natural gas futures markets data in order to develop models that could improve hedging and forecasting performance (Root and Lien, 2003;Mu, 2007;Park et al, 2008;Kao and Wan, 2009). …”

Section: Natural Gas Marketmentioning

confidence: 99%

Dynamic relationships between spot and futures prices. The case of energy and gold commodities

Nicolau

Palomba

2015

Resources Policy

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Wavelet domain correlation between the futures prices of natural gas and oil

Cited by 34 publications

References 16 publications

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

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

The Lead–Lag Relationship between Oil Futures and Spot Prices—A Literature Review

Dynamic relationships between spot and futures prices. The case of energy and gold commodities

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