The Lead Lag Relationship between Spot and Futures Markets In the Energy sector

Abstract

The present research aims to examine the lead-lag relationship between spot and futures markets of the most representative energy sources; crude oil heating oil natural gas and gasoline from 1979 to 2013 A key feature of the study is the examination of the relationship between spot and futures markets under different scenarios including oil shocks business cycle and transaction costs through the use of the Vector Error Correction Model (VECM) Additionally a ratio of speed of adjustment was built following Ammer and Cai in order to establish the market contribution that both spot and futures market have on price innovation The empirical findings indicate an important leadership and contribution of futures market toward price discovery regardless from oil shocks business cycle and transaction costs Nevertheless over the business cycle and improvement on spot markets in the contribution to price discovery is observed during recession periods than over expansion ones

Date of Award	2014 Nov 20
Original language	English
Supervisor	Jeng-Chung Chen (Supervisor)