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Price discovery in crude oil futures

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  • Elder, John
  • Miao, Hong
  • Ramchander, Sanjay

Abstract

This study examines price discovery among the two most prominent price benchmarks in the market for crude oil, WTI sweet crude and Brent sweet crude. Using data on the most active futures contracts measured at the one-second frequency, we find that WTI maintains a dominant role in price discovery relative to Brent, with an estimated information share in excess of 80%, over a sample from 2007 to 2012. Our analysis is robust to different decompositions of the sample, over pit-trading sessions and non-pit trading sessions, segmentation of days associated with major economic news releases, and data measured to the millisecond. We find no evidence that the dominant role of WTI in price discovery is diminished by the price spread between Brent that emerged in 2008.

Suggested Citation

  • Elder, John & Miao, Hong & Ramchander, Sanjay, 2014. "Price discovery in crude oil futures," Energy Economics, Elsevier, vol. 46(S1), pages 18-27.
    • Handle: RePEc:eee:eneeco:v:46:y:2014:i:s1:p:s18-s27
    DOI: 10.1016/j.eneco.2014.09.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Crude oil futures; WTI; Brent; Information sharing; Inventory level; Spread;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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