Effect of Crude Oil Futures Trading on Spot Market Volatility: A Panel Data–Based Counterfactual Prediction Analysis

Xin Yao and Qiang Liu

Emerging Markets Finance and Trade, 2017, vol. 53, issue 4, 918-931

Abstract: Based on panel data, a recently developed method of counterfactual prediction analysis is used in this article to analyze how the launch of Tokyo and Dubai crude oil futures influences the price volatility in the spot market whose underlying instruments are corresponding futures. Analysis results show that the launch of crude oil futures can speed up information integration into market system and reduce the volatility of the crude oil spot market, although the crude oil futures market is characterized mainly by speculative factors. The offshore underlying instrument does not have substantial influences on future contracts, while the scale of the futures market has a significant effect on the spot market volatility.

Date: 2017
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DOI: 10.1080/1540496X.2016.1210506

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