The target of this study is to investigate the pricing efficiency of natural gas futures
markets across different maturities, for 1, 2, 3, 6, 9 and 12 months, and whether
these tools can effectively be utilized by market participants. More specifically, the
paper examines the Unbiased Expectations Hypothesis (UEH) among futures and
spot prices in the natural gas market of New York Mercantile Exchange (NYMEX).
The following procedures include of the use of econometric techniques which test
whether or not futures prices hold as unbiased forecasts of the expected spot prices
by using single regressions and cointegration analysis. Due to the presence of
positive or non-constant forward premium, EGARCH models are employed which
permit for time varying premium and investigating more extensively the factors that
conduct to the biasedness of futures contracts for all months to maturity. Although
the existence of bias, futures prices for all months to maturity are found to
accurately predict the expected spot prices compared to forecasts that are produced
from ARIMA and random walk models.
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