The relationship between risk Premium varies over time and spot prices: a case study Crude oil futures market

Subject Areas : Financial Knowledge of Securities Analysis

Muosa Khoshkalam ¹ , Rouhollah Mahdavi ²

1 - Assistant Professor of Economics, Faculty of Social and Economics Science, Al-Zahra University, Tehran, Iran.
2 - PhD in Oil and Gas Economics, Allameh University, Tehran, Iran.

Received: 1970-01-01 Accepted : 1970-01-01 Published : 1970-01-01

Keywords: Time-Varying Risk premium, Spot price, futures markets, crude oil,

Abstract :

The various studies results Illustrate about the presence of time-varying risk premium in oil futures market. This paper investigates existence of risk premium, varying of its in time and its effectiveness on oil spot price using data for period 1986-2016. The research method in present research is in term of purpose applied, in term of method descriptive-correlation and in term of data nature quantitative. For insight to goals, the paper use from GARCH method, Co-integration test and Vector Error Correction model (VECM). The results of estimations point to risk premium fixed in period 1986-2016, but risk premium is time varying in short period (2004-2016). Also, the results of Co-integration test and vector error correction model indicate to coefficient of risk premium be negative in the period 1986-2016, whereas this coefficient is positive in the period 2004-2016. The coefficients show to oil market estate in Contango position in the period 1986-2016 and normal backwardation in the period 2004-2016

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