Abstract

JESUS GUTIERREZ, Raúl de. The Physical Oil and Oil Futures Markets: Transmission of the Mean and Volatility. Prob. Des [online]. 2018, vol.49, n.192, pp.9-35. ISSN 0301-7036.

This paper sets out to use the bivariate VEC-EGARCH model with constant correlations to analyze the process by which the mean and volatility are transmitted between the crude futures markets and physical oil markets in Mexico. The results point to the existence of bilateral performance information transmission patterns with stronger effects from the futures markets to the physical markets, while the evidence for the effects of bilateral volatility transmission only exists between the oil futures and physical oil markets in Olmeca. The empirical findings are relevant to governmental authorities and consumers because they aid in designing cross-hedging strategies that mitigate exposure to the price risk in Mexican oil.

Keywords : Mexico; oil; futures markets; physical market; volatility; bivariate VEC-EGARCH model.

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