Are Futures Prices Influenced by Spot Prices or Vice-versa? An Analysis of Crude Oil, Natural Gas and Gold Markets

Considering the financial theory based on \textit{cost-of-carry model}, a futures contract price is always influenced by the spot price of its underlying asset, as long as the futures price is determined as the sum of the underlying asset's spot price and its cost of carrying or storing. The aim of this paper is to verify if there are dynamic connections between spot and futures prices as statued by the \textit{cost-of-carry model}, and to identify the direction of causality. The empirical analysis is conducted on three different commodity markets, namely crude oil, natural gas and gold. We estimate a battery of recursive bivariate VAR models over a sample of daily spot and futures prices ranging from January 1997 to September 2013. Using the recursive Granger-causality analysis, we show that some interactions between spot and futures prices clearly exist and they mainly depend on market type and futures contract's maturity.