publication . Article . 2017

Hedging and speculative pressures and the transition of the spot-futures relationship in energy and metal markets

Park, Jin Suk; Shi, Yukun;
Open Access English
  • Published: 01 Nov 2017
  • Publisher: Elsevier
  • Country: India
Abstract
This paper examines the impact of hedging and speculative pressures on the transition of the spot-futures relationship in metal and energy markets. We build a Markov regime switching (MRS) model where hedging and speculative pressures affect the transition probabilities between a stronger and weaker spot-futures relationship. It is found that hedging pressure increases the likelihood of transition, i.e. destabilises the existing spot-futures relationship, while speculative pressure reduces it, i.e. stabilises the relationship, in the copper, crude oil and natural gas markets, but this effect is relatively weak in the silver and heating oil markets. We also exami...
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