University of Sussex
Browse
BubblingOver_June2015.pdf (1.47 MB)

Bubbling over! The behaviour of oil futures along the yield curve

Download (1.47 MB)
journal contribution
posted on 2023-06-09, 04:05 authored by Daniel Tsvetanov, Jerry Coakley, Neil Kellard
Using 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 Finance

ISSN

0927-5398

Publisher

Elsevier

Volume

38b

Page range

516-533

Department 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

2016-11-18

First Open Access (FOA) Date

2017-03-06

First Compliant Deposit (FCD) Date

2016-11-18

Usage metrics

    University of Sussex (Publications)

    Categories

    No categories selected

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC