Risk premium on crude oil futures prices

Abstract

This paper tests the risk premium on crude oil future prices in the US market. The history data on five crude oil spot prices and one crude oil future are collected through the period 2011 to 2013. To examine the risk premium on crude oil future prices based on the sample, this paper employs the cost of carry model. Meanwhile, OLS and GLS are the major regression used in this research. The results of the empirical study show that the risk premium on crude oil future prices is positive. This paper concludes that if the spot price grows, the potential profit to invest in crude oil futures is optimistic.