Abstract
This paper examines how weather shocks impact asset price dynamics in the US natural gas futures market. The empirical results reveal a significant weather effect on both the conditional mean and the conditional volatility of natural gas futures returns. Combined with the evidence that the volatility is considerably higher on Monday and the day when the natural gas storage report is released, these findings suggest that information about market fundamentals is an important determinant of natural gas volatility. In addition, this paper also provides support for the “Samuelson effect” that commodity futures volatility declines with contract horizon.
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