We analyze the adjustment process to long-run equilibrium and short-run dynamics with WTI spot and futures prices using a bivariate 3-regime TVECM. After dividing the entire sample into 5 sub-samples, we apply this model to each sub-sample. This allows us to check the differentiable effects of market conditions which can vary by sub-samples and regimes, on investors' behaviors. The estimation results show quite interesting points. First, the middle regimes of all 5 sub-samples are not targeted by investors, so we can find their activities only in lower and/or upper regimes. Second, we can make 3 different groups with 5 sub-samples. Sub-sample l shows brisk movements in futures markets under the price information leadership of spot markets and relatively longer adjustment time compared to the other 4 sub-samples. Sub-samples 2, 3, and 4 show the opposite phenomena to sub-sample l probably caused by sporadic big shocks on world economy. Sub-sample 5 shows mixed results in lower and upper regimes. We can analyze quite differentiable and opposite adjustments according to regimes in this sub-sample even under the dominated contango condition, which can be regarded as the precious harvest of employing a bivariate 3-regirne TVECM in this paper.
Abstract
I. Introduction
II. Research Methodologies
III. Data
IV. Empirical Analysis
V. Conclusions
References
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