Oil futures gloomier than reality during conflicts – Feds note
Commodity has become hedge against macroeconomic risk, research finds
Oil futures tend to overstate investors’ expectations of how the commodity’s price will change during geopolitical conflict, a new study from researchers with the US Federal Reserve board finds.
In their Feds note published on October 9, Erik Heitfield, Yang-Ho Park and Erfan Danesh examine how closely oil futures prices can predict the eventual spot prices of the commodity. They find that during periods of geopolitical stress, oil prices become “backwardated”, with spot prices rising
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