Examining Asymmetric Behavior in US Petroleum Futures and Spot Prices

This paper uses the momentum-threshold autoregressive (M-TAR) model to examine the possible asymmetric relationship between petroleum futures and spot prices for three different markets: crude oil, heating oil, and gasoline in the United States. The results indicate that the futures and spot prices for each petroleum type are cointegrated when allowing for asymmetric adjustment for each of these energy markets. We further investigate the asymmetric behavior between the futures and spot prices by estimating the M-TAR error-correction model. The M-TAR model allows us to document the adjustments that these markets undergo in response to changes in the basis.

[1]  R. Uppal,et al.  The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity , 1995 .

[2]  Cointegration and Threshold Adjustment , 2001 .

[3]  B. Hansen,et al.  Inference in TAR Models , 1997 .

[4]  M. Tamvakis,et al.  Spillover effects in energy futures markets , 2001 .

[5]  Kerry Krutilla,et al.  The Urban Household Energy Transition: Social and Environmental Impacts in the Developing World , 2005 .

[6]  S. Gulen.  Regionalization in the World Crude Oil Market , 1997 .

[7]  Bruce E. Hansen,et al.  THRESHOLD AUTOREGRESSION WITH A UNIT ROOT , 2001 .

[8]  Andrew C. Szakmary,et al.  Price discovery in petroleum markets: Arbitrage, cointegration, and the time interval of analysis , 1994 .

[9]  S. Dibooǧlu,et al.  All time cheaters versus cheaters in distress: An examination of cheating and oil prices in OPEC , 2007 .

[10]  F. Asche,et al.  Price relationships in the petroleum market: an analysis of crude oil and refined product prices , 2003 .

[11]  D. McMillan.  Non-linear dynamics in international stock market returns , 2005 .

[12]  Thore Johnsen,et al.  Risk management in the oil industry: can information on long-run equilibrium prices be utilized? , 1999 .

[13]  Albert S. Paulson,et al.  Risk arbitrage opportunities in petroleum futures spreads , 1999 .

[14]  S. Hammoudeh,et al.  An empirical exploration of the world oil price under the target zone model , 2002 .

[15]  K. Chan,et al.  Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model , 1993 .

[16]  B. Dumas.  Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World , 1992 .

[17]  D. Lien,et al.  Can modeling the natural gas futures market as a threshold cointegrated system improve hedging and forecasting performance , 2003 .

[18]  Howell Tong,et al.  A survey of the statistical analysis of univariate threshold autoregressive models , 1989 .

[19]  W. Crowder,et al.  A cointegration test for oil futures market efficiency , 1993 .

[20]  Clive W. J. Granger,et al.  Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates , 1998 .

[21]  A. Lanza,et al.  Modeling and forecasting cointegrated relationships among heavy oil and product prices , 2005 .

[22]  S. Hammoudeh,et al.  Causality and volatility spillovers among petroleum prices of WTI, gasoline and heating oil in different locations , 2003 .

[23]  Apostolos Serletis,et al.  A cointegration analysis of petroleum futures prices , 1994 .

[24]  Perry Sadorsky.  The empirical relationship between energy futures prices and exchange rates , 2000 .

[25]  S. Hammoudeh,et al.  The impact of the Asian crisis on the behavior of US and international petroleum prices , 2004 .

[26]  D. Lien,et al.  The effect of the cointegration relationship on futures hedging: A note , 1996 .

[27]  Imad A. Moosa,et al.  The relationship between spot and futures prices: Evidence from the crude oil market , 1999 .

[28]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[29]  Anthony E. Bopp,et al.  Are petroleum futures prices good predictors of cash value , 1987 .