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Investigating price clustering in the oil futures market

  • Narayan, Paresh Kumar
  • Narayan, Seema
  • Popp, Stephan

Price clustering can be a source of market inefficiency. It follows that searching for price clustering in markets have gone beyond share prices into real estate, interest rate, and exchange rate markets. In this paper, we extend this line of research to oil futures markets. In particular, we consider five different forms of oil futures contracts and test for evidence of price clustering. Our results reveal strong presence of price clustering in the oil futures market. This finding implies that price clustering can potentially be a source of oil market inefficiency, which can influence trading strategies.

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Article provided by Elsevier in its journal Applied Energy.

Volume (Year): 88 (2011)
Issue (Month): 1 (January)
Pages: 397-402

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Handle: RePEc:eee:appene:v:88:y:2011:i:1:p:397-402
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  1. Charles Kahn & George Pennacchi & Ben Sopranzetti, 1996. "Bank deposit rate clustering: theory and empirical evidence," Working Paper 9604, Federal Reserve Bank of Cleveland.
  2. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
  3. ap Gwilym, Owain & Clare, Andrew & Thomas, Stephen, 1998. "Price clustering and bid-ask spreads in international bond futures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 377-391, December.
  4. Aitken, Michael & Brown, Philip & Buckland, Christine & Izan, H. Y. & Walter, Terry, 1996. "Price clustering on the Australian Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 297-314, July.
  5. Victor Niederhoffer, 1965. "A New Look at Clustering of Stock Prices," The Journal of Business, University of Chicago Press, vol. 39, pages 309.
  6. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  7. Sopranzetti, Ben J. & Datar, Vinay, 2002. "Price clustering in foreign exchange spot markets," Journal of Financial Markets, Elsevier, vol. 5(4), pages 411-417, October.
  8. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
  9. De Grauwe, Paul & Decupere, Danny, 1992. "Psychological Barriers in the Foreign Exchange Market," CEPR Discussion Papers 621, C.E.P.R. Discussion Papers.
  10. Gottlieb, Gary & Kalay, Avner, 1985. " Implications of the Discreteness of Observed Stock Prices," Journal of Finance, American Finance Association, vol. 40(1), pages 135-53, March.
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