Research Paper for completion of the Economics major at Stony Brook University
The goal of this research paper is to test the hypothesis that increased financialization of the economy has a spill-over effect into commodity markets, namely, the oil market.
The correlation and co-movements between Oil Future (CL) and the S&P500 Future (ES) contracts are analyzed by both their respective price and volatility series. Firstly, standard Pearson Correlation is employed followed by Wavelet Coherence Analysis to observe realtionships in the time-frequency domain between the two financial time-series and assist in determining the presence of a lead-lag relationship.
Data from the Commitment of Traders regarding the change over time of Speculators vs Commercial Hedgers in the Oil Market is taken into account as alternative data explaining potential spill over of volatility.