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Market Efficiency Of Oil Spot And Futures: A Stochastic Dominance Approach

Date Added: Jan 2010
Format: PDF

This paper examines the market efficiency of oil spot and futures prices by using a Stochastic Dominance (SD) approach. As there is no evidence of an SD relationship between oil spot and futures, the authors conclude that there is no arbitrage opportunity between these two markets, and that both market efficiency and market rationality are not rejected in the oil spot and futures markets. Crude oil is an important commodity for the world economy. With the increasing fluctuations and tension of crude oil prices, oil futures have become one of the popular derivatives to hedge the risk of oil price hikes or crashes. Spot and futures prices of oil have been investigated over an extended period.