Testing for sign and size symmetry between futures prices and spot prices in the markets of energy commodities: risk diversification and policy implications
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 1 September 2023
Issue publication date: 25 January 2024
Abstract
Purpose
The purpose of this paper is to investigate for symmetries – in sign and size – between spot and futures prices in the markets of energy commodities.
Design/methodology/approach
The aforementioned objective is pursued using daily observations of spot and futures prices for the commodities of crude oil, Brent, heating oil, gasoline and natural gas, along with local nonlinear regression.
Findings
Symmetry in sign and size cannot be rejected. This means that, shocks of the same absolute magnitude, but of different sign, are transmitted from futures prices to spot prices with the same intensity. In addition, larger absolute value price shocks in the futures are transmitted to the spot markets with the same intensity compared with smaller ones. The findings of symmetry in the comovements among prices reveal a lack of those commodities on diversifying the investors’ investment risk.
Originality/value
To the best of the authors’ knowledge, this is the first study to use local nonlinear regression to test for sign and size symmetry between futures and spot prices in the energy commodities markets.
Keywords
Acknowledgements
The authors would like to express their gratitude to the two anonymous reviewers for their useful comments as well as to the Editor-in-Chief, Dr Niklas Wagner, for his valuable guidance.
Conflict of interest: On behalf of all authors, the corresponding author states that there is no conflict of interest.
Citation
Panagiotou, D. and Naka, F. (2024), "Testing for sign and size symmetry between futures prices and spot prices in the markets of energy commodities: risk diversification and policy implications", Studies in Economics and Finance, Vol. 41 No. 1, pp. 192-220. https://doi.org/10.1108/SEF-01-2023-0009
Publisher
:Emerald Publishing Limited
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