Can the Dynamics of the Term Structure of Petroleum Futures be Forecasted? Evidence from Major Markets
Chantziara, T., and Skiadopoulos, G. (2008): ¿Can the Dynamics of the Term Structure of Petroleum Futures be forecasted? Evidence from Major Markets¿, Energy Economics, 30:3, pp. 962-985.
Posted: 29 Apr 2008 Last revised: 24 Oct 2008
Abstract
We investigate whether the daily evolution of the term structure of petroleum futures can be forecasted. To this end, the principal components analysis is employed. The retained principal components describe the dynamics of the term structure of futures prices parsimoniously and are used to forecast the subsequent daily changes of futures prices. Data on the New York Mercantile Exchange (NYMEX) crude oil, heating oil, gasoline, and the International Petroleum Exchange (IPE) crude oil futures are used. We find that the retained principal components have small forecasting power both in-sample and out-of-sample. Similar results are obtained from standard univariate and vector autoregression models. Spillover effects between the four petroleum futures markets are also detected.
Keywords: Petroleum futures, Principal components analysis, Predictability, Spillovers, Term structure of futures prices
JEL Classification: C53, G10, G13, G14, Q49
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