Trading institutions and price discovery: the cash and futures markets for crude oil

Albert Ballinger, Gerald Dwyer and Ann B. Gillette

No 2004-28, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We provide substantial evidence that the futures market for West Texas Intermediate crude oil increased the short-term volatility of the cash price of crude oil. We show that the variability of prices increased using both published posted prices and transaction prices for producers. This increased volatility in the price of crude oil may reflect information aggregated into the price, an increase the variance of shocks to the price of crude oil, or noise in the futures price that affects the cash price. We present evidence from experiments consistent with the interpretation that information aggregation not feasible in a posted-price market can explain at least part of the increase in variance. This evidence supports the proposition that information not previously aggregated into the cash price for crude oil is at least part of the reason for the greater variability of the cash price after the opening of the futures market and provides at least one example in which a futures market increased the volatility of the cash market, and prices became more efficient.

Date: 2004
New Economics Papers: this item is included in nep-ene, nep-exp and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.frbatlanta.org/-/media/documents/resea ... s/wp/2004/wp0428.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:2004-28

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().