Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2009:7: Macroeconomic Factors and Oil Futures Prices: A Data-Rich Model

Paolo Zagaglia ()
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Paolo Zagaglia: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: I study the dynamics of oil futures prices in the NYMEX using a large panel dataset that includes global macroeconomic indicators, financial market indices, quantities and prices of energy products. I extract common factors from these series and estimate a Factor-Augmented Vector Autoregression for the maturity structure of oil futures prices. I find that latent factors generate information that, once combined with that of the yields, improves the forecasting performance for oil prices. Furthermore, I show that a factor correlated to purely financial developments contributes to the model performance, in addition to factors related to energy quantities and prices.

Keywords: Crude Oil; Futures Markets; Factor Models

JEL-codes: C53; D51; E52

27 pages, February 10, 2009

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