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On the short- and long-run efficiency of energy and precious metal markets

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  • Arouri, Mohamed El Hedi
  • Hammoudeh, Shawkat
  • Lahiani, Amine
  • Nguyen, Duc Khuong

Abstract

This article contributes to the related literature by empirically investigating the efficiency of nine energy and precious metal markets over the last decades, employing several pronounced models. We test for both short- and the long-run efficiency using, in addition to linear cointegration models, nonlinear cointegration and error-correction models (ECMs) which allow the efficiency intensity to change per regime. Our findings can be summarized as follows: i) futures prices are found to be cointegrated with spot prices, but they do not constitute unbiased predictors of future spot prices; ii) the hypothesis of risk neutrality is rejected; iii) the short-run efficiency hypothesis is rejected, suggesting that using past futures price returns improves the modeling and forecasting of future spot prices; and iv) the nonlinear modeling suggests the presence of two distinct regimes wherein the first regime the efficiency hypothesis is supported, whereas in the second it is rejected. The empirical findings have important implications for producers, hedgers, speculators and policymakers.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 40 (2013)
Issue (Month): C ()
Pages: 832-844

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Handle: RePEc:eee:eneeco:v:40:y:2013:i:c:p:832-844

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Market efficiency; Precious metals; Energy markets; Linear and nonlinear ECM models;

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References

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Cited by:
  1. Nick, Sebastian, 2013. "Price Formation and Intertemporal Arbitrage within a Low-Liquidity Framework: Empirical Evidence from European Natural Gas Markets," EWI Working Papers 2013-14, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
  2. Mihaela NICOLAU & Giulio PALOMBA & Ilaria TRAINI, 2013. "Are Futures Prices Influenced by Spot;Prices or Vice-versa? An Analysis of Crude;Oil, Natural Gas and Gold Markets," Working Papers 394, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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