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Natural gas futures, Temperature effects, VAR
In this study we investigate the price discovery process in the U.S. natural gas spot and futures markets. We explore the relationships between the spot and futures markets, the effect of U.S. temperature changes on these markets and, in addition, test whether New York City temperature changes have a special impact on the national market for natural gas. We find that most price discovery occurs in the futures market. We also find that colder days in winter and hotter days in summer result in higher gas prices, although daily changes in temperature have a stronger effect on prices during the winter. Furthermore, we find that the daily temperature changes in New York City, where the futures market for natural gas is physically located, have an additional effect on gas prices beyond what could be explained by the temperature changes aggregated across the U.S.