The Bias in the Long Run Relation between the Prices of BRENT and West Texas Intermediate Crude Oils
Samih Antoine Azar and
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Samih Antoine Azar: Haigazian University, Lebanon,
Angelic Salha: Haigazian University, Lebanon.
International Journal of Energy Economics and Policy, 2017, vol. 7, issue 1, 44-54
This paper is about the magnitude of association between two crude oils, the UK BRENT and the Texan West Texas intermediate. Practice presumes and theory predicts a unitary and a proportionate association, especially for the log-log specifications. A battery of cointegration tests are conducted to test whether the slopes, or the cointegrating vectors, are statistically significant and are statistically higher than +1. All cointegrating vectors are found to be statistically higher than +1 whatever the sample frequency selected, monthly, weekly, or daily, and whatever the functional forms or the econometric procedures adopted. Subsidiary results are that the samples chosen do not contain calendar structural breaks, and that regionalization of the oil market is strongly denied. These results reject the underlying intuition and theory, and set the stage for a possible financial anomaly.
Keywords: BRENT and West Texas Intermediate Crude Oil Spot Prices; Cointegration; Error-correction Models; Generalized Auto-regressive Conditional Heteroscedasticity Methods; Bias in the Association; Three Data Frequencies; Oil Market Integration (search for similar items in EconPapers)
JEL-codes: C22 C12 G15 Q41 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2017-01-05
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