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Examining Asymmetric Behavior in US Petroleum Futures and Spot Prices

Abstract:
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.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Investment and Finance – Trading Strategies and Financial Instruments; Energy Modeling – Forecasting and Market Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
G13 - Contingent Pricing; Futures Pricing; option pricing
D4 -

Keywords: Oil futures, spot prices, asymmetry, US oil markets, threshold cointegration

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No3-2


Published in Volume 27, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.