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Price relationships in crude oil futures: new evidence from CFTC disaggregated data

Chevallier, Julien (2013), Price relationships in crude oil futures: new evidence from CFTC disaggregated data, Environmental Economics and Policy Studies, 15, 2, p. 133-170. http://dx.doi.org/10.1007/s10018-012-0045-3

Type
Article accepté pour publication ou publié
Date
2013-04
Journal name
Environmental Economics and Policy Studies
Volume
15
Number
2
Publisher
Springer
Pages
133-170
Publication identifier
http://dx.doi.org/10.1007/s10018-012-0045-3
Metadata
Show full item record
Author(s)
Chevallier, Julien
Abstract (EN)
This paper attempts to reconcile two strands of literature on oil and speculation: one that posits the predominance of supply/demand fundamentals, and one that investigates the hypothesis of speculative trading. To do so, we develop a Markov switching analysis based on the WTI crude oil futures price, CFTC disaggregated data, and fundamentals of the oil price. The benefits of this approach are twofold: (1) the model is able to track changes in the underlying business cycle, and (2) the model explicitly incorporates data on the net positions of money managers as a proxy for speculative activity. After verifying the sensitivity of our results to the inclusion of supply and demand factors on the oil market, we cannot eliminate statistically the possibility of speculation among the main reasons behind the 2008 oil price swing. We also explicitly recognize the influence of many other economic variables during that specific time period.This paper attempts to reconcile two strands of literature on oil and speculation: one that posits the predominance of supply/demand fundamentals, and one that investigates the hypothesis of speculative trading. To do so, we develop a Markov switching analysis based on the WTI crude oil futures price, CFTC disaggregated data, and fundamentals of the oil price. The benefits of this approach are twofold: (1) the model is able to track changes in the underlying business cycle, and (2) the model explicitly incorporates data on the net positions of money managers as a proxy for speculative activity. After verifying the sensitivity of our results to the inclusion of supply and demand factors on the oil market, we cannot eliminate statistically the possibility of speculation among the main reasons behind the 2008 oil price swing. We also explicitly recognize the influence of many other economic variables during that specific time period.
Subjects / Keywords
Crude oil futures; speculation; CFTC disaggregated data; Markov-switching model
JEL
Q43 - Energy and the Macroeconomy
G15 - International Financial Markets
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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