Market efficiency of oil spot and futures: A mean-variance and stochastic dominance approach

Hooi Hooi Lean, Michael McAleer, Wing Keung WONG*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

53 Citations (Scopus)
1 Downloads (Pure)

Abstract

This paper examines the market efficiency of oil spot and futures prices by using both mean-variance (MV) and stochastic dominance (SD) approaches. Based on the West Texas Intermediate crude oil data for the sample period 1989-2008, we find no evidence of any MV and SD relationships between oil spot and futures indices. This infers that there is no arbitrage opportunity between these two markets, spot and futures do not dominate one another, investors are indifferent to investing spot or futures, and the spot and futures oil markets are efficient and rational. The empirical findings are robust to each sub-period before and after the crises for different crises, and also to portfolio diversification.

Original languageEnglish
Pages (from-to)979-986
Number of pages8
JournalEnergy Economics
Volume32
Issue number5
DOIs
Publication statusPublished - Sep 2010

Scopus Subject Areas

  • Economics and Econometrics
  • Energy(all)

User-Defined Keywords

  • Market efficiency
  • Mean-variance criterion
  • Oil futures market
  • Risk averter
  • Stochastic dominance

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