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Testing the efficiency of the futures market for crude oil in the presence of a structural break

Jason Stevens and Patrick de Lamirande ()

Applied Economics, 2014, vol. 46, issue 33, 4053-4059

Abstract: The efficiency of the futures market for crude oil has been the subject of significant study, with the basis regression representing a popular methodology. However, the parameters of this model are subject to a structural break, casting doubt on any conclusion regarding the efficiency of the futures market. To address this problem, this article employs a simple generalization which is capable of testing the efficiency of a futures market in the presence of a structural break. Using this approach, strong evidence of inefficiency is found in the one month futures contract for West Texas Intermediate for the period between 1985 and 2013, which is otherwise not detected.

Date: 2014
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DOI: 10.1080/00036846.2014.950794

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