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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2007:11:
Conditional Leptokurtosis in Energy Prices: Multivariate Evidence from Futures Markets

Massimiliano Marzo () and Paolo Zagaglia ()

Abstract: We study the joint movements of the returns on futures for crude oil, heating oil and natural gas at a daily frequency. We model the leptokurtic behavior through the multivariate GARCH with dynamic conditional correlations and elliptical distributions introduced by Pelagatti and Rondena (2004). Futures prices of crude and heating oil co-vary strongly. The correlation between the futures prices of natural gas and crude oil has been rising over the last 5 years. However, this correlation has been low on average over two thirds of the sample, indicating that futures markets have no established tradition of pricing natural gas as a function of developments on oil markets.

Keywords: Multivariate GARCH; Kurtosis; Energy Prices; Futures Markets; (follow links to similar papers)

JEL-Codes: C22; G19; (follow links to similar papers)

18 pages, June 27, 2007

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