The impact of commodity benchmarks on derivatives markets: The case of the dated Brent assessment and Brent futures

Alex Frino, Gbenga Ibikunle, Vito Mollica and Tom Steffen

Journal of Banking & Finance, 2018, vol. 95, issue C, 27-43

Abstract: We examine the response of ICE Brent Crude futures to the spot Dated Brent benchmark published by Platts. Trading activity in the futures market intensifies during the benchmark assessment. We also find trading in the direction of the published benchmark during the price assessment window. Aligned positions and a substantially increased arrival rate of informed traders suggest that sophisticated traders, taking advantage of a rise in uninformed trading activity, induce the price run-up in Brent futures, ahead of the Dated Brent assessment end. The general increase in the arrival rate of both informed and uninformed traders during the assessment window underlines the benchmark's relevance and its potential for attracting liquidity. Our results are robust to alternative specifications and underscore the significance of physical commodity benchmarks as critical elements of the financial market infrastructure.

Keywords: Dated Brent; Physical crude oil; Benchmark assessment; Brent futures (search for similar items in EconPapers)
JEL-codes: G13 G14 Q02 Q41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:95:y:2018:i:c:p:27-43

DOI: 10.1016/j.jbankfin.2017.08.017

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