Contributions of Crude Oil Exchange Traded Funds in Price Discovery Process

Keshab Shrestha, Sheena Philip and Yessy Peranginangin
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Sheena Philip: Monash University

American Business Review, 2020, vol. 23, issue 2, 393-407

Abstract: This study empirically investigates the contributions of three crude oil-based exchange-traded funds (ETFs) in the price discovery process. Using daily data on the crude oil spot, near month crude oil futures, and three crude-oil-based ETFs, we analyze the price discovery contributions of the five-price series. We use two information share measures, namely the generalized information share (GIS) measure (Lien and Shrestha, 2014) and the permanent-temporary decomposition (PT/GG) measure (Gonzalo and Granger, 1995). We find that the futures market dominates the price discovery process. However, we also find that the crude-oil-based ETFs significantly contribute to the price discovery process. Thus, we find that additional ETFs play a significant role in price discovery. Therefore, they are not redundant in terms of their price discovery contributions.

Keywords: Price Discovery; Cointegration; Information Share; Crude Oil (search for similar items in EconPapers)
JEL-codes: Q11 (search for similar items in EconPapers)
Date: 2020
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