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Testing the efficiency of the futures market for crude oil in the presence of a structural break

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  • J. Stevens
  • P. de Lamirande

Abstract

The efficiency of the futures market for crude oil has been the subject of significant study, with the basis regression representing a popular methodology. However, the parameters of this model are subject to a structural break, casting doubt on any conclusion regarding the efficiency of the futures market. To address this problem, this article employs a simple generalization which is capable of testing the efficiency of a futures market in the presence of a structural break. Using this approach, strong evidence of inefficiency is found in the one month futures contract for West Texas Intermediate for the period between 1985 and 2013, which is otherwise not detected.

Suggested Citation

  • J. Stevens & P. de Lamirande, 2014. "Testing the efficiency of the futures market for crude oil in the presence of a structural break," Applied Economics, Taylor & Francis Journals, vol. 46(33), pages 4053-4059, November.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:33:p:4053-4059
    DOI: 10.1080/00036846.2014.950794
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    Cited by:

    1. Go, You-How & Lau, Wee-Yeap, 2017. "Investor demand, market efficiency and spot-futures relation: Further evidence from crude palm oil," Resources Policy, Elsevier, vol. 53(C), pages 135-146.
    2. Gil-Alana, Luis A. & Gupta, Rangan & Olubusoye, Olusanya E. & Yaya, OlaOluwa S., 2016. "Time series analysis of persistence in crude oil price volatility across bull and bear regimes," Energy, Elsevier, vol. 109(C), pages 29-37.
    3. Tokic, Damir, 2015. "The 2014 oil bust: Causes and consequences," Energy Policy, Elsevier, vol. 85(C), pages 162-169.
    4. Alper Kara & Dilem Yildirim & G. Ipek Tunc, 2023. "Market efficiency in non-renewable resource markets: evidence from stationarity tests with structural changes," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 36(2), pages 279-290, June.
    5. Alper Kara & Dilem Yıldırım & Gül İpek Tunç, 2021. "Market Efficiency In Non-Renewable Resource Markets: Evidence From Stationarity Tests With Structural Changes," ERC Working Papers 2103, ERC - Economic Research Center, Middle East Technical University, revised Apr 2021.

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