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| Author: | Ng, V. Pirrong, S. |
| Title: | Price dynamics in refined petroleum spot and futures markets |
| Journal: | Journal of Empirical Finance
1996 : FEB, VOL. 2:4, p. 359-388 |
| Index terms: | FINANCE PRICES MARKETS |
| Language: | eng |
| Abstract: | This article characterizes the spot and futures price dynamics of two important physical commodities, gasoline and heating oil. Using a non-linear error correction model with time-varying volatility, the authors demonstrate many new results. Specifically, the convergence of spot and futures prices is asymmetric, non-linear, and volatility inducing. Moreover, spreads between spot and futures prices explain virtually all spot return volatility innovations for these two commodities, and spot returns are more volatile when spot prices exceed futures prices than when the reverse is true. |
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