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 journalJournal articlepeer-review

    80 Citations (Scopus)
    43 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
    Early online date21 May 2010
    DOIs
    Publication statusPublished - Sept 2010

    Scopus Subject Areas

    • Economics and Econometrics
    • Energy(all)

    User-Defined Keywords

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

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