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(Showing results 1 to 9 of 9)



Developing Futures Markets for Electricity in Europe

Eirik Schroder Amundsen and Balbir Singh

Year: 1992
Volume: Volume 13
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No3-5
View Abstract

Abstract:
Risk sharing instruments, which allow consumers and producers to hedge their price-risk, are additional essential elements of the electricity reorganization process presently taking place in Europe. This paper involves tin analysis of the feasibility of establishing futures markets in the electricity sector in general and with special emphasis on steps undertaken in the United Kingdom and Norway. Even though there seems to be sufficient price uncertainty to warrant the development of futures markets, there remains the question of whether the underlying new spot-markets are yet sufficiently competitive and well-functioning. Monopolistic elements in electricity generation make it doubtful whether efficiency can be obtained through the intended (Bertrand) price competition in the spot-market. Additional problems may arise from the potential adverse response of dominant multi-objective public enterprises to the new futures markets.



An Econometric Analysis of the Market for Natural Gas Futures

W. David Walls

Year: 1995
Volume: Volume16
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No1-5
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Abstract:
This research tests a form of the efficient markets hypothesis in the, market for natural gas futures. Unlike other studies of futures markets, the test for market efficiency is conducted at numerous locations which comprise the, natural gas spot market in addition to the delivery location specified in the futures contract. Natural gas spot and futures prices are found to be nonstationary and accordingly are modeled using recently developed maximum likelihood cointegration techniques. The futures market price is found to be cointegrated with nearly all of the spot market prices across the national network of gas pipelines. The hypothesis of market efficiency can be rejected in 3 of the 13 spot markets examined.



The Dynamics of Commodity Spot and Futures Markets: A Primer

Robert S. Pindyck

Year: 2001
Volume: Volume22
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No3-1
No Abstract



Do Speculators Drive Crude Oil Futures Prices?

Bahattin Buyuksahin and Jeffrey H. Harris

Year: 2011
Volume: Volume 32
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-7
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Abstract:
The coincident rise in crude oil prices and increased number of financial participants in the crude oil futures market from 2000-2008 has led to allegations that "speculators" drive crude oil prices. As crude oil futures peaked at $147/ bbl in July 2008, the role of speculators came under heated debate. In this paper, we employ unique data from the U.S. Commodity Futures Trading Commission (CFTC) to test the relation between crude oil prices and the trading positions of various types of traders in the crude oil futures market. We employ Granger Causality tests to analyze lead and lag relations between price and position data at daily and multiple day intervals. We find little evidence that hedge funds and other non-commercial (speculator) position changes Granger-cause price changes; the results instead suggest that price changes precede their position changes.



Optimal Abandonment of EU Coal-fired Stations

Luis M. Abadie, José; M. Chamorro and Mikel González-Eguino

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-7
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Abstract:
Coal-fired power plants face potential difficulties in a carbon constrained world. The traditional advantage of coal as a cheaper fuel may erode in the future if CO2 allowance prices increase. When would it be optimal to abandon a coal station and obtain its salvage value? We assess this question following the Real Options approach. We consider the case of a coal plant that operates in a deregulated electricity market where natural gas-fired plants are the marginal units. We assume specific stochastic processes for the fundamental uncertainties in our model: coal price, natural gas price, and emission allowance price. The underlying parameters are derived from actual futures markets. They are further used in a three-dimensional binomial lattice to assess the decision to abandon. We draw the optimal exercise boundary. Sensitivity analyses (regarding fuel prices, allowance price, volatilities, useful life, residual value, thermal efficiency, safety valves in carbon prices, time step) are also undertaken.



Financial Speculation in Energy and Agriculture Futures Markets: A Multivariate GARCH Approach

Matteo Manera, Marcella Nicolini, and Ilaria Vignati

Year: 2013
Volume: Volume 34
Number: Number 3
DOI: 10.5547/01956574.34.3.4
View Abstract

Abstract:
This paper analyses futures prices of four energy commodities (crude oil, heating oil, gasoline and natural gas) and five agricultural commodities (corn, oats, soybean oil, soybeans and wheat), over the period 1986�2010. Using DCC multivariate GARCH models, it provides new evidence on four research questions: 1) Are macroeconomic factors relevant in explaining returns of energy and nonenergy commodities? 2) Is financial speculation significantly related to returns in futures markets? 3) Are there significant relationships among returns, either in their mean or variance, across different markets? 4) Is speculation in one market affecting returns in other markets? Results suggest that the S&P 500 index and the exchange rate significantly affect returns. Financial speculation, proxied by Working�s T index, is poorly significant in modelling returns of commodities. Moreover, spillovers between commodities are present and the conditional correlations among energy and agricultural commodities display a spike around 2008.



Measuring Index Investment in Commodity Futures Markets

Dwight R. Sanders and Scott H. Irwin

Year: 2013
Volume: Volume 34
Number: Number 3
DOI: 10.5547/01956574.34.3.6
View Abstract

Abstract:
The "Masters Hypothesis" is the claim that unprecedented buying pressure in recent years from new index investment created a massive bubble in commodity futures prices. Due to data limitations, some recent studies of the market impact of index investment in the WTI crude oil futures market impute index positions. We investigate the accuracy of the algorithm popularized by Masters (2008) to estimate index positions. The estimates generated by the Masters algorithm deviate substantially from the positions reported in the U.S. Commodity Futures Trading Commission's (CFTC) Index Investment Data (IID) report--the agency's best data on index positions. The Masters algorithm over-estimates the gross WTI crude oil position by an average of 142,000 contracts. Importantly, the deviation in the first half of 2008, the period of greatest concern about the market impact of index investment, is directionally wrong. These results suggest empirical tests of market impact based on mapping algorithms in WTI crude oil futures should be viewed with considerable caution.



The Convenience Yield and the Informational Content of the Oil Futures Price

Jean-Thomas Bernard, Lynda Khalaf, Maral Kichian, and Sebastien McMahon

Year: 2015
Volume: Volume 36
Number: Number 2
DOI: 10.5547/01956574.36.2.2
View Abstract

Abstract:
Recent studies have shown that futures prices do not generally outperform naive no-change forecasts of spot prices, calling into question the usefulness of futures prices for forecasting purposes. However, such usefulness is predicated on the question of whether certain modeling strategies are able to yield more of the information found in futures prices. Applying a forecast-based approach, we study the extent to which alternative ways of modeling futures prices can reveal the extent of the information present in futures prices. Using weekly and monthly data, and futures of maturities of one to four months, we notably examine the out-of-sample predictability of futures prices over various forecast horizons, and in real-time, whereby parameters are updated prior to each sequential forecast. Our results with weekly data are particularly interesting. We find that models allowing for a time-varying convenience yield often produce considerably more precise forecasts over the three forecast horizons considered. Thus, more of the informational content of futures prices is attainable when both the price level and the distance of the latter from spot price are jointly considered, rather than when only the price level is considered. We also document that forecast performances improve with longer date-to-maturity futures, suggesting that the role of the convenience yield is greater when physical oil inventories are held for longer durations. Finally, we show that forecast accuracy is highest at the one year horizon, though the time-varying convenience models have a much higher accuracy than unit-root-based models even over the three and five-year horizons.



Understanding Dynamic Conditional Correlations between Oil, Natural Gas and Non-Energy Commodity Futures Markets

Niaz Bashiri Behmiri, Matteo Manera, and Marcella Nicolini

Year: 2019
Volume: Volume 40
Number: Number 2
DOI: 10.5547/01956574.40.2.nbeh
View Abstract

Abstract:
We look at the dynamic conditional correlations (DCCs) between oil, natural gas and other non-energy commodity futures markets, obtained from a DCC-GARCH model over the period 1998-2014. They are positive and display a sharp increase around year 2008 and a subsequent decrease. The DCCs between energy and metals are larger than the energy-agriculture ones. To understand how macroeconomic and financial factors, as well as speculative activity, influence them, we estimate an ARDL(1,1) model, adopting a pooled mean group (PMG) estimator. We observe that macroeconomic and financial variables are significantly correlated with the energy-agriculture and energy-metals DCCs. Speculative activity contributes to explain the energy-agriculture DCCs but not those of the energy-metals.





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