2026-09-19T06:16:13Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/591182022-01-13T07:54:52Zcom_1721.1_7582com_1721.1_7581col_1721.1_131023
Andrew. W. Lo.
Fazzio, Thomas J. (Thomas Joseph)
Sloan School of Management.
Sloan School of Management
2010-10-12T16:22:14Z
2010-10-12T16:22:14Z
2010
2010
http://hdl.handle.net/1721.1/59118
658824688
Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management, 2010.
Vita. Cataloged from PDF version of thesis.
Includes bibliographical references (p. 70-71).
This paper attempts to understand the price dynamics of the North American natural gas market through a statistical survey that includes an analysis of the variables influencing the price and volatility of this energy market. The analysis develops a theoretical model for the conditional reactions to weekly natural gas inventory reports, and develops an extended theory of errors in natural gas inventory estimates. The central objective of this thesis is to answer the fundamental question of whether the volatility of natural gas futures are conditional on the season or the level of the natural gas in inventory and how accurate are analysts at forecasting the inventory level. Commodity prices are volatile, and volatility itself varies over time. I examine the role of volatility in shortrun natural gas market dynamics and the determinants of error in inventory estimates leading to this variance. I develop a structural model that equates the conditional volatility response to the error made in analyst forecasts, inherently relating analyst sentiment to volatility and price discovery. I find that in the extremes of the inventory cycle (i.e., near peak injection/withdraw) that variance is particularly strong, and significantly higher than non-announcement days. The high announcement day volatility reflects larger price changes. With statistical significance, we can conclude that when the natural gas market is under-supplied, the near-term Henry Hub Natural Gas futures contract becomes nearly twice as volatile than in an oversupplied market. Furthemore, analysts are more prone to make errors in their estimates of weekly inventory levels around these same time periods. Natural gas is an essential natural resource and is used in myriad aspects of the global economy and society. As we look to develop more sustainable energy policies, North America's abundant clean-burning natural gas will hold an essential role in helping us to secure our future energy independence. An ability to understand the factors influencing it is supply and demand, and thus price, are and will continue to be essential.
by Thomas J. Fazzio.
M.B.A.
71 p.
eng
Massachusetts Institute of Technology
M.I.T. theses are protected by
copyright. They may be viewed from this source for any purpose, but
reproduction or distribution in any format is prohibited without written
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http://dspace.mit.edu/handle/1721.1/7582
Sloan School of Management.
A statistical analysis of the natural gas futures market : the interplay of sentiment, volatility and prices
Thesis
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Publication
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<Abstract>This paper attempts to understand the price dynamics of the North American natural gas market through a statistical survey that includes an analysis of the variables influencing the price and volatility of this energy market. The analysis develops a theoretical model for the conditional reactions to weekly natural gas inventory reports, and develops an extended theory of errors in natural gas inventory estimates. The central objective of this thesis is to answer the fundamental question of whether the volatility of natural gas futures are conditional on the season or the level of the natural gas in inventory and how accurate are analysts at forecasting the inventory level. Commodity prices are volatile, and volatility itself varies over time. I examine the role of volatility in shortrun natural gas market dynamics and the determinants of error in inventory estimates leading to this variance. I develop a structural model that equates the conditional volatility response to the error made in analyst forecasts, inherently relating analyst sentiment to volatility and price discovery. I find that in the extremes of the inventory cycle (i.e., near peak injection/withdraw) that variance is particularly strong, and significantly higher than non-announcement days. The high announcement day volatility reflects larger price changes. With statistical significance, we can conclude that when the natural gas market is under-supplied, the near-term Henry Hub Natural Gas futures contract becomes nearly twice as volatile than in an oversupplied market. Furthemore, analysts are more prone to make errors in their estimates of weekly inventory levels around these same time periods. Natural gas is an essential natural resource and is used in myriad aspects of the global economy and society. As we look to develop more sustainable energy policies, North America's abundant clean-burning natural gas will hold an essential role in helping us to secure our future energy independence. An ability to understand the factors influencing it is supply and demand, and thus price, are and will continue to be essential.</Abstract>
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