This paper tests the theory of storage—the hypothesis that the marginal convenience yield on inventory falls at a decreasing rate as inventory increases in energy markets (crude oil, heating oil, and unleaded gas markets). We use the Fama and French (1988) indirect test, based on the relative variation in spot and futures prices. The results suggest that the theory holds for the energy markets.
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2.
FamaE.F. (1984). “Forward and Spot Exchange Rates.” Journal of Monetary Economics14: 319-338.
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FamaE.F.FrenchK.R. (1988). “Business Cycles and the Behavior of Metals Prices.” The Journal of Finance43: 1075-93.
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FrenchK.R. (1986). “Detecting Spot Price Forecasts in Futures Prices.” Journal of Business59 (April, Part 2): S39 - S54.
