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Price discovery efficiency of China's crude oil futures: Evidence from the Shanghai crude oil futures market

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  • Shao, Mingao
  • Hua, Yongjun

Abstract

This study investigates the pricing efficiency of the Shanghai Crude Oil Futures (SC) as a newly emerged crude oil future market from the perspective of co-integration and estimates its contribution to price discovery in China based on the vector error correction model (VECM), permanent–transitory (PT), information share (IS), and modified information share (MIS) models. All results show a long-run equilibrium relationship exists between crude oil futures and spot prices in China, but SC contributes just approximately 50% to price discovery, which is roughly equal to that of the spot market. Compared with West Texas Intermediate (WTI) and Brent crude oil markets, the pricing efficiency of SC lags significantly, which means that SC has a certain capability of price discovery, although it is now still in its initial development stage as the price taker of the international crude oil market.

Suggested Citation

  • Shao, Mingao & Hua, Yongjun, 2022. "Price discovery efficiency of China's crude oil futures: Evidence from the Shanghai crude oil futures market," Energy Economics, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:eneeco:v:112:y:2022:i:c:s0140988322003255
    DOI: 10.1016/j.eneco.2022.106172
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    Cited by:

    1. Viviana Fanelli & Claudio Fontana & Francesco Rotondi, 2023. "A hidden Markov model for statistical arbitrage in international crude oil futures markets," Papers 2309.00875, arXiv.org.
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    3. Zhang, Jiaming & Guo, Songlin & Dou, Bin & Xie, Bingyuan, 2023. "Evidence of the internationalization of China's crude oil futures: Asymmetric linkages to global financial risks," Energy Economics, Elsevier, vol. 127(PA).
    4. Wang, Xiaoyu & Wang, Jiaojiao & Wang, Wenhuan & Zhang, Shuquan, 2023. "International and Chinese energy markets: Dynamic spillover effects," Energy, Elsevier, vol. 282(C).

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    More about this item

    Keywords

    China's Shanghai crude oil futures; Price discovery; VECM model; WTI; Brent;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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