Degree of Integration between Brent Oil Spot and Futures Markets: Intraday Evidence
47 Pages Posted: 15 Nov 2014 Last revised: 19 Aug 2017
Date Written: July 15, 2017
We investigate the integration of oil spot and futures markets using matched, intraday data to avoid non-synchronous 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 takes place 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. Overall, 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. This is the first paper to work with precisely matched customized data in futures markets, specifically oil futures.
Keywords: Natural Resources, Futures Markets, Brent, Integration of Markets, Co-integration, Granger Causality
JEL Classification: G13, G14, Q32, Q35, Q41
Suggested Citation: Suggested Citation