The effect of seasonal hedging on energy futures spreads: A test of market efficiency
This dissertation tests the efficiency of selected NYMEX petroleum futures spreads. It is argued that seasonal changes in hedging activity cause seasonal biases in futures price spreads. A multimarket equilibrium model is presented which illustrates the effect of seasonal hedging behavior on spreads. The primary hypothesis is: NYMEX futures markets for No. 2 heating oil, unleaded gasoline, and crude oil are not semi-strong efficient. If futures markets are not semi-strong efficient then all publicly available information is not reflected in contract prices. The secondary hypothesis is: by anticipating seasonal changes in hedger interest in NYMEX NO. 2 heating oil, unleaded gasoline, and crude oil futures markets, a speculator can profit from changing NYMEX future spreads. Nine speculative trading rules are presented to test the two hypotheses. They specify the contracts to spread so the speculator can profit from theorized biases in selected NYMEX future spreads. The number of contracts to spread and the period the spreads are held is clearly specified. The trading rules are tested over five trading years. An econometric model then analyzes the profitability of the spreads over time to determine if trends exist which would indicate spread biases. The empirical results support the primary and secondary hypotheses of this dissertation. Nonseasonal hedging and speculator interest are argued to cause losses occasionally. Nevertheless, the results suggest that a speculator can profit in the long run by trading selected NYMEX spreads. The profitability of some of the rules over time exhibited non-random behavior. These results suggest that spread biases caused profits to steadily increase during several spread periods. This evidence supports the hypothesis that NYMEX futures markets are not semi-strong efficient; it suggests that biases do exist.
- Research Organization:
- Arizona Univ., Tucson, AZ (United States)
- OSTI ID:
- 6092277
- Country of Publication:
- United States
- Language:
- English
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ECONOMETRICS
ECONOMIC ANALYSIS
ECONOMICS
EFFICIENCY
ENERGY SOURCES
ERRORS
FORECASTING
FOSSIL FUELS
FUEL OILS
FUELS
GAS OILS
GASOLINE
HEATING OILS
INVESTMENT
LIQUID FUELS
LOSSES
MARKET
MARKETING RESEARCH
MATHEMATICAL MODELS
OILS
ORGANIC COMPOUNDS
OTHER ORGANIC COMPOUNDS
PETROLEUM
PETROLEUM FRACTIONS
PETROLEUM PRODUCTS
PROFITS
SEASONAL VARIATIONS
UNLEADED GASOLINE
VARIATIONS