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Business cycle, storage, and energy prices
Author(s) -
Kucher Oleg,
Kurov Alexander
Publication year - 2014
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2014.09.001
Subject(s) - business cycle , economics , recession , commodity , interest rate , monetary economics , financial economics , econometrics , macroeconomics , finance
This study examines the effect of the state of the economy and inventory on interest‐adjusted bases and expected returns for five energy commodities. We find that interest‐adjusted bases and returns have a business cycle pattern. Consistent with the theory of storage, demand shocks near business cycle peaks generate negative interest‐adjusted bases and positive returns. In recessions, the bases become positive, and the average returns are negative. Our regression results also show that the interest‐adjusted bases of energy commodities are counter‐cyclical and the expected returns are pro‐cyclical. For petroleum commodities, inventory has a significant effect on interest‐adjusted bases at low levels of inventory, whereas at high inventory levels the effect of inventory on the bases is weak. Finally, we find that the bases and economic conditions predict spot returns in energy commodity markets.