Tsvetanov, Daniel, Coakley, Jerry and Kellard, Neil (2015) Bubbling over! The behaviour of oil futures along the yield curve. Journal of Empirical Finance, 38b. pp. 516-533. ISSN 0927-5398

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Abstract

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.

Item Type:	Article
Keywords:	Rational bubbles; Spot and futures prices; Bubble dating algorithm; Macro-prudential policy.
Schools and Departments:	School of Business, Management and Economics > Business and Management
Research Centres and Groups:	Business and Finance Research Group
Subjects:	H Social Sciences > HB Economic theory. Demography H Social Sciences > HG Finance
Depositing User:	Daniel Tsvetanov
Date Deposited:	18 Nov 2016 12:41
Last Modified:	07 Mar 2017 08:18
URI:	http://srodev.sussex.ac.uk/id/eprint/65539

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