Title

Efficient estimation and testing of oil futures contracts in a mutual offset system

Publication Type

Journal Article

Publication Date

1-2004

Abstract

With the globalization of financial and commodity markets, it is becoming increasingly important to recognize price linkages between markets beyond national boundaries. Models of futures pricing that incorporate such price linkages into the information set can be expected to be superior empirically. Test results obtained in the paper support this proposition strongly in the case of Brent crude oil futures contracts traded in a mutual offset system between the Singapore International Monetary Exchange (SIMEX) and the International Petroleum Exchange (IPE). Augmented models of SIMEX Brent futures contracts are obtained by incorporating the previous day's IPE Brent futures price into the equation system for the unbiased expectations and the cost-of-carry hypotheses, whereas augmented models of IPE Brent futures contracts are obtained by incorporating the same day's SIMEX Brent futures price in the system for the two hypotheses. On the basis of tests of zero restrictions, the system for the augmented unbiased expectations hypothesis is found to be superior empirically to the system for the standard Unbiased Expectations hypothesis, and the augmented cost-of-carry system is also found to be superior empirically to the standard cost-of-carry system for both SIMEX Brent futures and IPE Brent futures contracts.

Discipline

Finance | Finance and Financial Management

Research Areas

Finance

Publication

Applied Financial Economics

Volume

14

Issue

13

First Page

953

Last Page

962

ISSN

0960-3107

Identifier

10.1080/0960310042000284687

Publisher

Taylor & Francis (Routledge): SSH Titles

Additional URL

http://doi.org/10.1080/0960310042000284687

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