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Did crisis alter trading of two major oil futures markets?

Author

Listed:
  • Iman Adeinat

    (King Abdulaziz University)

  • Naseem Al Rahahleh

    (King Abdulaziz University)

  • Peihwang Wei

    (Providence University)

Abstract

The paper analyzes how traders in two major oil futures markets: New York Mercantile Exchange (NYMEX) and Intercontinental Exchange, reacted to the 2008 financial crisis, particularly whether they shifted their trading pattern and whether the relative information role of the two markets changed. Using trade-by-trade data, the paper analyzes several trading characteristics including trading volume, trade size, volatility, bid–ask spread, and relative information share. On average, NYMEX is characterized by greater volume, trade size and slightly greater spread. Before the crisis, NYMEX leads the process of price discovery, and volatility and trade size are significant factors explaining this leadership. However, following the financial crisis of 2008, the leadership role of NYMEX declines and trade size and volatility are no longer significant factors. Contrary to results of most equity market research, bid–ask spread is not a significant factor in information share and causality tests indicate that causality runs from spread to information share before the crisis but the opposite holds during the crisis period.

Suggested Citation

  • Iman Adeinat & Naseem Al Rahahleh & Peihwang Wei, 2018. "Did crisis alter trading of two major oil futures markets?," Review of Derivatives Research, Springer, vol. 21(1), pages 45-61, April.
    • Handle: RePEc:kap:revdev:v:21:y:2018:i:1:d:10.1007_s11147-017-9133-7
    DOI: 10.1007/s11147-017-9133-7
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    More about this item

    Keywords

    Financial crisis; Oil futures; Price discovery; Trading characteristics;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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