Degree of Integration between Brent Oil Spot and Futures Markets: Intraday Evidence
Document Type
Article
Keywords
Futures market; Shock (Economics); Financial markets; Macroeconomics; Petroleum sales & prices; Securities and Commodity Exchanges; Investment Banking and Securities Dealing; Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals); Petroleum Bulk Stations and Terminals; Petroleum and petroleum products merchant wholesalers; Crude Petroleum and Natural Gas Extraction; Pipeline Transportation of Crude Oil
Identifier Data
https://doi.org/10.1080/1540496X.2017.1376644
Publisher
Taylor & Francis
Abstract
We investigate the integration of oil spot and futures markets using matched, intraday data to avoid nonsynchronous trading issues. Our evidence indicates highly integrated spot and futures markets. Economic shocks that arise in spot markets are quickly transmitted to the futures markets approximately one-for-one. Most of the reaction occurs within minutes. Similarly, economic shocks arriving in futures markets are transmitted to spot markets one-for-one, once again, within minutes consistent with market efficiency. In general, our findings indicate well-functioning, well-integrated spot and futures oil markets that are informationally efficient and that perform the functions of both price discovery and risk transfer. To the best of our knowledge, this is the first article to work with precisely matched customized data in futures markets, specifically oil futures markets
