1. Interpreting the oil risk premium: Do oil price shocks matter?
- Author
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Matteo Manera, Daniele Valenti, Alessandro Sbuelz, Valenti, D, Manera, M, and Sbuelz, A
- Subjects
Economics and Econometrics ,020209 energy ,Risk premium ,02 engineering and technology ,Monetary economics ,Settore SECS-P/01 - ECONOMIA POLITICA ,Crude oil ,Settore SECS-P/11 - ECONOMIA DEGLI INTERMEDIARI FINANZIARI ,Futures risk premium ,0502 economics and business ,0202 electrical engineering, electronic engineering, information engineering ,Economics ,050207 economics ,Speculation ,health care economics and organizations ,Bayesian SVAR models ,05 social sciences ,Investment (macroeconomics) ,Bayesian SVAR model ,Settore SECS-S/06 - METODI MATEMATICI DELL'ECONOMIA E DELLE SCIENZE ATTUARIALI E FINANZIARIE ,Shock (economics) ,General Energy ,Negative relationship ,Settore SECS-P/05 - ECONOMETRIA ,Oil price ,Futures contract ,Oil price speculation - Abstract
This paper analyzes the link between the economic fundamentals of the global crude oil markets and the oil futures risk premium. The compensation for risk required by speculators in the oil futures market is modelled as part of the endogenous transmission of oil price shocks. The empirical approach is based on a Structural Vector Autoregressive model of the international market for crude oil. The dynamic response functions show a negative relationship between the risk premium and the real price of oil, triggered by shocks to economic fundamentals. Moreover, the expected returns of a long futures investment are largely explained by a specific shock component related to oil speculators and a shift in the global demand for crude oil.
- Published
- 2020