Relationship between futures and spot market prices – an empirical study of the U.S Natural gas market before and after the Shale gas revolution
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- Studentoppgaver (TN-ISØP) 
In 2009, a massive increase in production of natural gas started due to new technology. Based on this increase in production, this study examines the efficient market hypothesis in the US natural gas market for the period Jan 1997-Dec 2017 for futures contracts with 1-, 2-, 3-, and 4-month to maturity. 2009 is the point of separation for the two periods analysed and compared in this thesis. Jan 1997- Dec 2008 is defined as before shale gas revolution, Jan 2009- Dec 2017 is defined as after shale gas revolution. The efficient market hypothesis is tested by using Johansen cointegration test and by imposing restrictions on α and β. An efficient market is in this thesis defined as significant cointegration while at the same time restrictions on α=0, and β=1 cannot be rejected. If the efficient market hypothesis holds, the futures contract is an unbiased estimator of future spot price. The results from this thesis shows a change in the US natural gas futures market. US natural gas prices suffered a decline after the shale gas revolution and the volatility decreased, indicating that predicting prices was more difficult before 2009. Before the shale gas revolution, the market was not efficient for any of the contracts. After the shale gas revolution, the 1-month contract was efficient while the contracts with 2-, 3-, and 4-month to maturity was not efficient. The 1-month contract after the shale gas revolution has neither over- or underestimated the spot price, but for every other contract the futures price has overestimated spot price. As the futures price has been overestimating the spot price it is fair to assume that bias occurs due to a risk premium of going short.
Master's thesis in Industrial economics