Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Massimiliano Marzo () and Paolo Zagaglia ()
Additional contact information
Massimiliano Marzo: Department of Economics, Universit`a di Bologna, Postal: Department of Economics, Universit`a di Bologna, Piazza Scaravilli 2, 40126 Bologna, Italy, and Johns Hopkins University, SAIS-BC.
Paolo Zagaglia: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

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

JEL-codes: C22; G19

18 pages, June 27, 2007

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