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Volatility dynamics of NYMEX natural gas futures prices

Author

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  • Hiroaki Suenaga
  • Aaron Smith
  • Jeffrey Williams

Abstract

We examine the volatility dynamics of NYMEX natural gas futures prices via the partially overlapping time‐series model of Smith (2005. Journal of Applied Econometrics, 20, 405–422). We show that volatility exhibits two important features: (1) volatility is greater in the winter than in the summer, and (2) the persistence of price shocks and, hence, the correlations among concurrently traded contracts, displays substantial seasonal and cross‐sectional variation in a way consistent with the theory of storage. We demonstrate that, by ignoring the seasonality in the volatility dynamics of natural gas futures prices, previous studies have suggested sub‐optimal hedging strategies. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:438–463, 2008

Suggested Citation

  • Hiroaki Suenaga & Aaron Smith & Jeffrey Williams, 2008. "Volatility dynamics of NYMEX natural gas futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(5), pages 438-463, May.
    • Handle: RePEc:wly:jfutmk:v:28:y:2008:i:5:p:438-463
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    Cited by:

    1. Karali, Berna & Ramirez, Octavio A., 2014. "Macro determinants of volatility and volatility spillover in energy markets," Energy Economics, Elsevier, vol. 46(C), pages 413-421.
    2. Martínez, Beatriz & Torró, Hipòlit, 2015. "European natural gas seasonal effects on futures hedging," Energy Economics, Elsevier, vol. 50(C), pages 154-168.
    3. Geng, Jiang-Bo & Ji, Qiang & Fan, Ying, 2016. "The behaviour mechanism analysis of regional natural gas prices: A multi-scale perspective," Energy, Elsevier, vol. 101(C), pages 266-277.
    4. Misund, Bård & Oglend, Atle, 2016. "Supply and demand determinants of natural gas price volatility in the U.K.: A vector autoregression approach," Energy, Elsevier, vol. 111(C), pages 178-189.
    5. Hailemariam, Abebe & Smyth, Russell, 2019. "What drives volatility in natural gas prices?," Energy Economics, Elsevier, vol. 80(C), pages 731-742.
    6. Liang, Chao & Xia, Zhenglan & Lai, Xiaodong & Wang, Lu, 2022. "Natural gas volatility prediction: Fresh evidence from extreme weather and extended GARCH-MIDAS-ES model," Energy Economics, Elsevier, vol. 116(C).
    7. Nikitopoulos, Christina Sklibosios & Thomas, Alice Carole & Wang, Jianxin, 2023. "The economic impact of daily volatility persistence on energy markets," Journal of Commodity Markets, Elsevier, vol. 30(C).
    8. Chao Liang & Feng Ma & Lu Wang & Qing Zeng, 2021. "The information content of uncertainty indices for natural gas futures volatility forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 40(7), pages 1310-1324, November.
    9. Martínez, Beatriz & Torró, Hipòlit, 2023. "Theory of storage implications in the European natural gas market," Journal of Commodity Markets, Elsevier, vol. 29(C).
    10. Beatriz Martínez & Hipòlit Torró, 2016. "Anatomy of Risk Premium in UK Natural Gas Futures," Working Papers 2016.06, Fondazione Eni Enrico Mattei.
    11. Kao, Chung-Wei & Wan, Jer-Yuh, 2009. "Information transmission and market interactions across the Atlantic -- an empirical study on the natural gas market," Energy Economics, Elsevier, vol. 31(1), pages 152-161, January.
    12. Nicola Secomandi & Guoming Lai & François Margot & Alan Scheller-Wolf & Duane J. Seppi, 2015. "Merchant Commodity Storage and Term-Structure Model Error," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 302-320, July.
    13. V., Ernesto Guerra & H., Eugenio Bobenrieth & H., Juan Bobenrieth & Wright, Brian D., 2023. "Endogenous thresholds in energy prices: Modeling and empirical estimation," Energy Economics, Elsevier, vol. 121(C).
    14. Shao, Chengwu & Bhar, Ramaprasad & Colwell, David B. & Sheng, Ni & Wei, Xinyang, 2024. "Variance dynamics and term structure of the natural gas market," Energy Economics, Elsevier, vol. 137(C).
    15. Chih-Chen Hsu & An-Sing Chen & Shih-Kuei Lin & Ting-Fu Chen, 2017. "The affine styled-facts price dynamics for the natural gas: evidence from daily returns and option prices," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 819-848, April.
    16. Ergen, Ibrahim & Rizvanoghlu, Islam, 2016. "Asymmetric impacts of fundamentals on the natural gas futures volatility: An augmented GARCH approach," Energy Economics, Elsevier, vol. 56(C), pages 64-74.
    17. Oleksandr Castello & Marina Resta, 2023. "A Machine-Learning-Based Approach for Natural Gas Futures Curve Modeling," Energies, MDPI, vol. 16(12), pages 1-22, June.
    18. Martínez, Beatriz & Torró, Hipòlit, 2018. "Analysis of risk premium in UK natural gas futures," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 621-636.
    19. Secomandi, Nicola & Seppi, Duane J., 2014. "Real Options and Merchant Operations of Energy and Other Commodities," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 6(3-4), pages 161-331, July.
    20. Pham, Son Duy & Nguyen, Thao Thac Thanh & Do, Hung Xuan, 2023. "Natural gas and the utility sector nexus in the U.S.: Quantile connectedness and portfolio implications," Energy Economics, Elsevier, vol. 120(C).
    21. Sheng-Hung Chen & Song-Zan Chiou-Wei & Zhen Zhu, 2022. "Stochastic seasonality in commodity prices: the case of US natural gas," Empirical Economics, Springer, vol. 62(5), pages 2263-2284, May.

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