Department of Economics
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.
Mean-variance criterion, Stochastic dominance, Risk averter, Oil futures market, Market efficiency
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Link to Publisher's Edition
Lean, H., McAleer, M., & Wong, W. (2010). Market efficiency of oil spot and futures: A mean-variance and stochastic dominance approach. Energy Economics, 32 (5). https://doi.org/10.1016/j.eneco.2010.05.001