BubblingOver_June2015.pdf (1.47 MB)
Bubbling over! The behaviour of oil futures along the yield curve
journal contribution
posted on 2023-06-09, 04:05 authored by Daniel Tsvetanov, Jerry Coakley, Neil KellardUsing a rational bubble framework, a future spot price bubble can be shown to induce explosive behaviour in current long maturity futures prices under particular conditions. To assess this empirically, we employ a novel test of the unit root null against a mildly explosive alternative to investigate multiple bubbles in the crude oil spot and a range of futures prices along the yield curve employing monthly and weekly data from 1995 to 2013. The results indicate that series overwhelmingly exhibit significant bubble periods ending in late 2008 even after allowing for an increase in unconditional volatility. Bubbles in the longer-dated contracts emerged as early as 2004 and are longer lasting than those in nearby and spot contracts. The bubble period was characterized by dramatic shifts in the yield curve associated with institutional spread positions that sharply increased futures prices at longer maturities. The results suggest that periods of time series disconnect between the spot and longer dated futures contracts could potentially form an input into early warning systems for macro-prudential policy.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Empirical FinanceISSN
0927-5398Publisher
ElsevierExternal DOI
Volume
38bPage range
516-533Department affiliated with
- Business and Management Publications
Research groups affiliated with
- Business and Finance Research Group Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2016-11-18First Open Access (FOA) Date
2017-03-06First Compliant Deposit (FCD) Date
2016-11-18Usage metrics
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