Title: Testing for bubbles in commodity spot and futures using a co-explosive autoregression
Authors: Neil Kellard - University of Essex (United Kingdom) [presenting]
Sam Astill - University of Essex (United Kingdom)
Ioannis Korkos - University of Essex (United Kingdom)
Abstract: Virtually all studies of asset price bubbles are carried out in a univariate framework. By contrast, we examine questions of bubble identification and consequently, market efficiency using a bivariate approach. Firstly, we apply a co-explosive vector autoregression to model whether the WTI crude oil price run up of 2007-2008 can be attributed to the existence of a bubble. We find evidence that there is (i) an explosive root in the system and (ii) that oil spot and futures prices at various maturities, are cointegrated over that period. Secondly, as an alternative approach, we apply recent univariate bubble tests to the difference between futures and spot prices. We finish with an evaluation regarding the most appropriate approach to bubble identification in commodity markets.