Earticle

We analyzed long-run adjustment process to equilibrium and short-run dynamics with WTI spot and futures prices using bivariate 3-regime TVECM. After dividing the entire sample period into 5 sub-samples, we applied this model to each sub-sample. This allows us to figure out the differentiable effects of market conditions which can vary by sub-samples and regimes, on investors' behaviors. The estimation results showed quite interesting points. First, the middle regimes of all 5 sub-samples were not targeted by investors, so we could find their activities only in lower and/or upper regimes. Second, we can make 3 different groups with 5 sub-samples. Period 1 showed brisk movements in futures markets under the price information leadership of spot markets and relatively longer adjustment time compared to the other 4 periods. Period 2, 3, and 4 showed the opposite phenomena to period 1 probably caused by sporadic big shocks on world economy. Period 5 showed mixed results in lower and upper regimes. We could analyze quite differentiable and opposite adjustments according to regimes in this period even under the dominated contango condition, which could be regarded as the precious harvest of employing a bivariate 3-regime TVECM in this paper.