ECIN Replication Package for "New Evidence on Crude Oil Market Efficiency"
Principal Investigator(s): View help for Principal Investigator(s) Liang Hu, Wayne State University; Yoon-Jin Lee, Kansas State University
Version: View help for Version V2
| Name | File Type | Size | Last Modified |
|---|---|---|---|
| WEAI data and code | 10/07/2023 11:29:PM |
Project Citation:
Hu, Liang, and Lee, Yoon-Jin. ECIN Replication Package for “New Evidence on Crude Oil Market Efficiency.” Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-10-07. https://doi.org/10.3886/E193064V2
Project Description
Summary:
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This paper examines the efficient market hypothesis (EMH) in crude oil in the face of the "financialization of the commodity markets" and the "fracking revolution". The generalized spectral derivative test (Hong and Lee 2005) is applied to test market efficiency in both spot and futures markets of WTI and Brent benchmarks. A stochastic dominance test (Linton et al. 2005) is used to investigate arbitrage opportunities across markets and across benchmarks. We find that financialization of the commodity markets has made each market more efficient but also created more arbitrage opportunities in spot-futures markets at both benchmarks. Fracking revolution fragmented oil markets and drove huge price differentials across benchmarks, yet it made little impact on market efficiency in individual markets or between markets.
Scope of Project
Subject Terms:
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Market efficiency;
Crude oil;
Financialization of the commodity market;
Fracking
JEL Classification:
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C12 Hypothesis Testing: General
C14 Semiparametric and Nonparametric Methods: General
G14 Information and Market Efficiency; Event Studies; Insider Trading
C12 Hypothesis Testing: General
C14 Semiparametric and Nonparametric Methods: General
G14 Information and Market Efficiency; Event Studies; Insider Trading
Manuscript Number:
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ECIN-Mar-2022-0117
Time Period(s):
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1/1/1989 – 12/31/2019
Methodology
Data Source:
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We consider daily closing prices for spot and front-month futures markets of oil in both benchmarks, Brent and WTI.
Brent futures price data are obtained from the Bloomberg terminal and the rest series are all obtained from the EIA website.
Brent futures price data are obtained from the Bloomberg terminal and the rest series are all obtained from the EIA website.
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