TITLE:
Relationship between Spot and Future Prices of Crude Oil: A Cointegration Analysis
AUTHORS:
M. C. Minimol
KEYWORDS:
Spot Price, Future Price, Crude Oil, Asset Prices, Cointegration, Vector Error Correction Model
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.3,
February
11,
2018
ABSTRACT: The study was intended to reveal the relationship among
the spot and future price of crude oil, which in turn will help in determining
the prices of crude oil. While structuring a portfolio, high correlation among
assets alone cannot be taken as a satisfactory measure for long run
diversification paybacks. There is a crucial need to enhance the traditional
risk-return modeling methodologies by giving due consideration to common long
term trends among the asset prices. Considering this pressing need, the present
paper attempts to explore the long run and
short run relationship between spot and future prices of crude oil using time series data. To estimate the long
and short run dynamics of crude oil
prices, the present study applies the Johansen cointegration, and vector error correction modelling to time series analysis.