Market Efficiency of Oil Spot and Futures: A Mean-Variance and Stochastic Dominance Approach

Hooi Hooi Lean (), Michael McAleer and Wing-Keung Wong

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper examines the market efficiency of oil spot and futures prices by using both mean-variance (MV) and stochastic dominance (SD) approaches. Based on the West Texas Intermediate crude oil data for the sample period 1989-2008, we find no evidence of any MV and SD relationships between oil spot and futures indices. This infers that there is no arbitrage opportunity between these two markets, spot and futures do not dominate one another, investors are indifferent to investing in spot or futures, and the spot and futures oil markets are efficient and rational. The empirical findings are robust to each sub-period before and after the crises for different crises, and also to portfolio diversification.

Keywords: Stochastic dominance; risk averter; oil futures market; market efficiency (search for similar items in EconPapers)
JEL-codes: C14 G12 G15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-04-01
New Economics Papers: this item is included in nep-ban and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (78)

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https://repec.canterbury.ac.nz/cbt/econwp/1018.pdf (application/pdf)

Related works:
Journal Article: Market efficiency of oil spot and futures: A mean-variance and stochastic dominance approach (2010)
Working Paper: Market Efficiency of Oil Spot and Futures: A Mean-Variance and Stochastic Dominance Approach (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:10/18

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