Does Something Change in the Oil Market with the Covid-19 Crisis ?

Dan Zhang, Frédéric Lantz and Arash Farnoosh ()
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Dan Zhang: IFP School
Frédéric Lantz: IFP School, IFPEN - IFP Energies nouvelles
Arash Farnoosh: IFP School, IFPEN - IFP Energies nouvelles

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Abstract: This paper examines the price discovery of three international crude oil futures markets (WTI, Brent, INE) before and after the outbreak of the COVID-19 with the application of information share and component share model. Our study shows that there is a structural break of the date of 6th of March,2020 in each price series with Zivot and Andrew's unit root test. Using Gregory and Hansen cointegration tests, cointegration relationships with structural break in May,2020 are detected. According to results of IS and CS model of Yan and Zviot (2010), Brent futures price mainly plays a leading role of WTI and INE futures price and occupies an absolute dominant position all the time in the three crude oil futures markets systems. In the post-covid period, the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets. After the outbreak of COVID-19, the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI. These findings offer practical implications for regulators and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic.

Keywords: Oil Market; Price discovery; Structural Break (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-ene
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