Do Heating Oil Prices Adjust Asymmetrically To Changes In Crude Oil Prices

Abstract

This study investigated if there is an asymmetric  relationships between heating oil and  crude oil futures price changes for maturities of one to four months. The study finds that heating oil and crude oil futures price series of one-month to four month maturities are threshold cointegrated. The study  also shows that heating oil and crude oil futures prices adjust "Asymmetrically" for deviation from equilibrium. At shorter maturities (one and two month contracts) heating oil and crude oil prices adjust faster for positive deviation from threshold equilibrium. In contrast, for longer maturities (three and four month contracts) heating oil and crude oil prices adjust faster for negative deviation from equilibrium.  Finally, this study finds that only heating oil prices adjust to clear deviations from long-run equilibrium relationship.