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Macro factors in oil futures returns

Author

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  • Yannick Le Pen
  • Benoît Sévi

Abstract

We investigate the macro factors that can explain the monthly oil futures return for the NYMEX WTI futures contract for the time period 1993:11 to 2010:03. We build a new database of 187 real and nominal macroeconomic variables from developed and emerging countries and resort to the large factor approximate model to extract 9 factors from this dataset. We then regress crude oil return on several combinations of these factors. Our best model explains around 38% of the variability of oil futures return. More interestingly, the factor which has the largest influence on crude oil price is related to real variables from emerging countries. This result confirms the latest finding in the literature that the recent evolution in oil price is attributable to change in supply and demand conditions and not to the large increase in trading activity from speculators

Suggested Citation

  • Yannick Le Pen & Benoît Sévi, 2011. "Macro factors in oil futures returns," International Economics, CEPII research center, issue 126-127, pages 13-38.
    • Handle: RePEc:cii:cepiie:2011-q2-3-126-127-2
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    File URL: http://www.sciencedirect.com/science/article/pii/S2110701713600347
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    Citations

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    Cited by:

    1. Derek Bunn, Julien Chevallier, Yannick Le Pen, and Benoit Sevi, 2017. "Fundamental and Financial Influences on the Co-movement of Oil and Gas Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    2. Julien, Chevallier & Sévi, Benoît, 2013. "A Fear Index to Predict Oil Futures Returns," Energy: Resources and Markets 156489, Fondazione Eni Enrico Mattei (FEEM).
    3. repec:dau:papers:123456789/11714 is not listed on IDEAS

    More about this item

    Keywords

    Crude Oil Futures; Large Approximate Factor Models; Macro Determinants;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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