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Does Something Change in the Oil Market with the COVID-19 Crisis ?

Author

Listed:
  • Dan Zhang

    (China University of Petroleum, IFPEN - IFP Energies nouvelles, IFP School)

  • Arash Farnoosh

    (IFPEN - IFP Energies nouvelles, IFP School)

  • Frédéric Lantz

    (IFPEN - IFP Energies nouvelles, IFP School)

Abstract

This paper examines the price discovery of three international crude oil futures markets (WTI, Brent, INE) before and after the outbreak of the COVID-19 with the application of the information share and component share model. Our study shows that there is a structural break of the date of March 6, 2020, in each price series with Zivot and Andrew's unit root tests. Using Gregory and Hansen cointegration tests, cointegration relationships with the structural break in May 2020 are detected. According to results of Information Share (IS) and Component Share (CS) measures Brent futures price mainly plays a leading role in WTI and INE futures prices and occupies an absolutely dominant position all the time in the three crude oil futures markets systems. In the post-covid period, the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets. After the outbreak of COVID-19, the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI. These findings offer practical implications for regulators and portfolio risk managers during the unprecedented uncertainty period provoked by the COVID-19 pandemic.

Suggested Citation

  • Dan Zhang & Arash Farnoosh & Frédéric Lantz, 2022. "Does Something Change in the Oil Market with the COVID-19 Crisis ?," Post-Print hal-03601767, HAL.
    • Handle: RePEc:hal:journl:hal-03601767
    DOI: 10.1016/j.inteco.2022.01.008
    Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-03601767
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    2. Lien, Donald & Shrestha, Keshab & Lee, Lianne Mei Quin, 2022. "Analytical properties of Hasbrouck and generalized information shares," Finance Research Letters, Elsevier, vol. 49(C).

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    Keywords

    Oil Market; Price Discovery; Structural Break;
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