Market Efficiency of Oil Spot and Futures: A Mean-Variance and Stochastic Dominance Approach
Hooi Hooi Lean (),
Michael McAleer and
Wing-Keung Wong ()
No 718, KIER Working Papers from Kyoto University, Institute of Economic Research
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 of 1989-2008, we find no evidence of any MV and SD relationship 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. Our 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)
New Economics Papers: this item is included in nep-ene and nep-sea
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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:kyo:wpaper:718
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