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The relationship between spot and futures oil prices: Do structural breaks matter?

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  • Chen, Pei-Fen
  • Lee, Chien-Chiang
  • Zeng, Jhih-Hong

Abstract

This paper examines the effect of structural breaks on the spot–futures oil prices relationship. We explore the impact of structural breaks on four critical issues, including cointegrating relationships, market efficiency under the expectation hypothesis and the no arbitrage rule, causalities, and forecasting performance of futures oil volatility. As far as our empirical results exhibit, the structural break we detect endogenously causes some influences on these issues, which is in sharp contrast to the conclusions of existing studies. Our findings offer some implications and suggestions to researchers, investors, and policymakers.

Suggested Citation

  • Chen, Pei-Fen & Lee, Chien-Chiang & Zeng, Jhih-Hong, 2014. "The relationship between spot and futures oil prices: Do structural breaks matter?," Energy Economics, Elsevier, vol. 43(C), pages 206-217.
    • Handle: RePEc:eee:eneeco:v:43:y:2014:i:c:p:206-217
    DOI: 10.1016/j.eneco.2014.03.006
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    More about this item

    Keywords

    Oil market; Futures prices; Structural breaks; Market efficiency; Volatility forecast;
    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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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