Fundamentals and US natural gas price dynamics

Investigation into the relations between market fundamentals and US natural gas prices is carried out in the regime-switching framework. To test the hypothesis that US natural gas market may switch between two states of market: bullish market and bearish market, a 2-state regime-switching model with Markov transition chain is carried out. GARCH effects are also built into the model to account for the conditional heteroskedasticity. Short-term forecasts based on the regime-switching model are also provided. Empirical results suggest that real world natural gas price behavior is far more complicated than that predicted by fundamental models. Volatility which cannot be explained by fundamentals plays an essential role in natural gas price behavior. The major contribution of this study lies in the effort to ease the deficiency of current fundamental-based models on commodity pricing due to high volatility by applying regime-switching models.

Issue Date:
Publication Type:
Conference Paper/ Presentation
Record Identifier:
PURL Identifier:
Total Pages:
Series Statement:
Selected Paper

 Record created 2017-04-01, last modified 2018-01-22

Download fulltext

Rate this document:

Rate this document:
(Not yet reviewed)