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Estimating functional efficiency in energy futures markets


  • Javier Garcia-Verdugo
  • Meliyara Sirex Consuegra


This paper proposes a method to estimate the functional efficiency of energy futures markets in terms of social welfare. Using a standard futures markets structural model, it can be concluded that the error committed when using futures prices at moment t to predict spot prices at t+1 results in welfare losses through resource misallocation. Therefore, the social welfare associated with the presence of energy futures markets can be measured using a social loss (SL) statistic and its components. This statistic is computed for six energy futures contracts with eight maturities each with data from April 1992 to December 2012. The results confirm the consistency and robustness of the method. Finally, several practical uses for the SL statistic are suggested.

Suggested Citation

  • Javier Garcia-Verdugo & Meliyara Sirex Consuegra, 2013. "Estimating functional efficiency in energy futures markets," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 105-115.
  • Handle: RePEc:ove:journl:aid:10050

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    References listed on IDEAS

    1. J. Stevens, 2013. "Testing the efficiency of the futures market for crude oil using weighted least squares," Applied Economics Letters, Taylor & Francis Journals, vol. 20(18), pages 1611-1613, December.
    2. Avsar, S Gulay & Goss, Barry A, 2001. "Forecast Errors and Efficiency in the US Electricity Futures Market," Australian Economic Papers, Wiley Blackwell, vol. 40(4), pages 479-499, December.
    3. Stein, Jerome L, 1981. "Speculative Price: Economic Welfare and the Idiot of Chance," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 223-232, May.
    4. William J. Crowder & Anas Hamed, 1993. "A cointegration test for oil futures market efficiency," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(8), pages 933-941, December.
    5. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-1189, December.
    6. Joost M. E. Pennings & Philip Garcia, 2010. "Risk And Hedging Behavior: The Role And Determinants Of Latent Heterogeneity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 373-401, December.
    7. Emilio Peroni & Robert McNown, 1998. "Noninformative and informative tests of efficiency in three energy futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(8), pages 939-964, December.
    8. Lorne N. Switzer & Mario El‐Khoury, 2007. "Extreme volatility, speculative efficiency, and the hedging effectiveness of the oil futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(1), pages 61-84, January.
    9. Kaoru Kawamoto & Shigeyuki Hamori, 2011. "Market efficiency among futures with different maturities: Evidence from the crude oil futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 31(5), pages 487-501, May.
    10. Maslyuk, Svetlana & Smyth, Russell, 2009. "Cointegration between oil spot and future prices of the same and different grades in the presence of structural change," Energy Policy, Elsevier, vol. 37(5), pages 1687-1693, May.
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