Physical Sciences and Mathematics Commons^™

Modelling Dynamic Conditional Correlations In Wti Oil Forward And Futures Returns, Alessandro Lanza, Matteo Manera, Micheal Mcaleer

Matteo Manera

This paper estimates the dynamic conditional correlations in the returns on WTI oil onemonth forward prices, and one-, three-, six-, and twelve-month futures prices, using recently developed multivariate conditional volatility models. The dynamic correlations enable a determination of whether the forward and various futures returns are substitutes or complements, which are crucial for deciding whether or not to hedge against unforeseen circumstances. The models are estimated using daily data on WTI oil forward and futures prices, and their associated returns, from 3 January 1985 to 16 January 2004. At the univariate level, the estimates are statistically significant, with the occasional …