Informational Efficiency in Futures Markets for Crude Oil
AbstractThis paper develops a methodology to test whether recent developments on world oil markets are in line with the hypothesis of efficient markets. We treat the joint hypothesis problem as stated by Fama (1970), Fama (1991), that market efficiency can only be assessed in conjunction with a price model of market equilibrium. Data on spot and futures prices for Brent crude oil in the period 2002â€ 2008 are used in combination with a multi factor model to investigate whether futures prices are efficient forecasts of future spot prices. The hypothesis of market efficiency is assessed by comparing the observed developments of crude oil spot prices to the exâ€ante expected distributions of spot prices using the Rosenblatt transform. For the Brent crude oil futures market, the results are in line with the hypothesis of market efficiency in the shortâ€term but during our sample period the hypothesis is refuted when forecast horizons of one year are considered. Our findings suggest that it can lead to rather wrong investment decisions when relying on longerâ€term crude oil futures prices and the information contained therein.
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Bibliographic InfoPaper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 1103.
Length: 26 pages
Date of creation: Mar 2011
Date of revision: Jan 2012
Multi factor model; Informational efficiency; Oil market;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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- Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo, 2008. "Short-term predictability of crude oil markets: A detrended fluctuation analysis approach," Energy Economics, Elsevier, vol. 30(5), pages 2645-2656, September.
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