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Long Memory in Oil and Refined Products Markets

Kyongwook Choi and Shawkat Hammoudeh

Year: 2009
Volume: Volume 30
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No2-5
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Abstract:
We test for the presence of long memory in daily oil and refined products prices absolute return, squared return and conditional volatility, using several parametric and semiparametric methods. This study finds strong evidence of long memory (LM) in the daily absolute and squared spot and futures returns for crude oil, gasoline and heating oil but at different degrees. The FIGARCH model also demonstrates strong evidence of LM for volatility for most of oil and products prices returns, with also different resilience levels. Structural breaks have only the partial effects of slightly reducing persistence for just absolute and squared returns. Examining the forecasting behavior of two competing models, the less parsimonious ARFIMA which satisfies the LM property, and the parsimonious ARMA with short-term processes, the ARFIMA model provides significantly better out-of-sample forecasts at all forecasting horizons for all three petroleum types.



Asymmetric Adjustments in Oil and Metals Markets

Shawkat Hammoudeh, Li-Hsueh Chen and Bassam Fattouh

Year: 2010
Volume: Volume 31
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No4-9
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Abstract:
Using the threshold cointegration methods, Enders-Siklos (2001) and Hansen-Seo (2002), this study finds that spot and futures prices in each of the four widely traded commodities, copper, gold, WTI oil and silver are asymmet�rically co-integrated. However, the asymmetric adjustment to the long-run equi�librium differs among those commodities, reflecting different profitable opportu�nities. The adjustment is faster for copper after positive shocks, while it is faster for the safe havens oil, gold and silver after negative shocks. It is more the spot and not the futures price for the four commodities that focuses in its adjustment on long-run factors. In sum, the adjustments imply different trading strategies, depending on whether the faster adjustment happened from above or below the threshold.





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