This paper analyzes the link between the economic fundamentals of the global crude oil markets and the oil futures risk premium. The compensation for risk required by speculators in the oil futures market is modelled as part of the endogenous transmission of oil price shocks. The empirical approach is based on a Structural Vector Autoregressive model of the international market for crude oil. The dynamic response functions show a negative relationship between the risk premium and the real price of oil, triggered by shocks to economic fundamentals. Moreover, the expected returns of a long futures investment are largely explained by a specific shock component related to oil speculators and a shift in the global demand for crude oil.

Interpreting the oil risk premium: Do oil price shocks matter? / D. Valenti, M. Manera, A. Sbuelz. - In: ENERGY ECONOMICS. - ISSN 0140-9883. - 91(2020 Sep). [10.1016/j.eneco.2020.104906]

Interpreting the oil risk premium: Do oil price shocks matter?

D. Valenti
Primo
Conceptualization
;
2020

Abstract

This paper analyzes the link between the economic fundamentals of the global crude oil markets and the oil futures risk premium. The compensation for risk required by speculators in the oil futures market is modelled as part of the endogenous transmission of oil price shocks. The empirical approach is based on a Structural Vector Autoregressive model of the international market for crude oil. The dynamic response functions show a negative relationship between the risk premium and the real price of oil, triggered by shocks to economic fundamentals. Moreover, the expected returns of a long futures investment are largely explained by a specific shock component related to oil speculators and a shift in the global demand for crude oil.
Bayesian SVAR models; Crude oil; Futures risk premium; Oil price speculation
Settore SECS-P/01 - Economia Politica
Settore SECS-P/05 - Econometria
13-ago-2020
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/767141
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