Does the Launch of Shanghai Crude Oil Futures Stabilize the Spot Market ? A Financial Cycle Perspective

Dan Zhang, Arash Farnoosh and Zhengwei Ma
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Dan Zhang: CUP - China University of Petroleum Beijing, IFPEN - IFP Energies nouvelles, IFP School
Arash Farnoosh: IFPEN - IFP Energies nouvelles, IFP School
Zhengwei Ma: CUP - China University of Petroleum Beijing

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Abstract: Based on the examination of price discovery between Shanghai crude oil futures and the spot market, this paper explores whether the introduction of Shanghai crude oil futures can play a stabilizing role in the spot market, alleviating the impact of the financial cycle risk on the crude oil market from March 2018 to December 2019. The results show that there is only a uni-directional relationship of the spot price to futures price, and spot plays a leading role in price discovery. The risk of the financial cycle will increase the volatility of spot price, and the introduction of crude oil futures market can increase the impact of the financial cycle on the spot market. The additional research on the microcosmic mechanism of Shanghai crude oil futures indicates that crude oil futures market mainly influences the spot market fluctuation through the behaviour of traders: speculation increases price volatility in the spot market, which is more pronounced in the high volatility of the financial cycle as oppose to hedging transaction.

Keywords: Shanghai crude oil futures; Price discovery; Stabilization; Financial cycle (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-cna, nep-ene, nep-mst and nep-rmg
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Published in International Economic Journal, 2022, 36 (1), pp.39-58. ⟨10.1080/10168737.2021.2001027⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03910474

DOI: 10.1080/10168737.2021.2001027

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