Document Type

Journal Article

Department/Unit

Department of Economics

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.

Publication Year

2010

Journal Title

Energy Economics

Volume number

32

Issue number

5

Publisher

Elsevier

First Page (page number)

979

Last Page (page number)

986

Referreed

1

DOI

10.1016/j.eneco.2010.05.001

ISSN (print)

0140-9883

Link to Publisher’s Edition

http://dx.doi.org/10.1016/j.eneco.2010.05.001

Keywords

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

Included in

Economics Commons

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