The lead lag relationship between spot and futures markets in the energy sector

Jeng-Chung Chen, Yolanda Gabriela Prince, Quang An Ha

Research output: Contribution to journalArticle

Abstract

This paper investigates the lead-lag relationship between spot and futures markets of the most representative energy sources under three different scenarios using the vector error correction model. Additionally, a ratio of speed of adjustment was built in order to establish the market contribution of both spot and futures markets on price innovation. The empirical findings indicate an important leadership and contribution of futures market in relation to price discovery regardless of oil shocks, business cycle and transaction costs. Nevertheless, an improvement in spot markets’ contribution to price discovery is observed during recession periods rather than expansion periods.

Original languageEnglish
Pages (from-to)23-30
Number of pages8
JournalInternational Journal of Energy Economics and Policy
Volume7
Issue number4
Publication statusPublished - 2017 Jan 1

Fingerprint

Lead
Error correction
Innovation
Financial markets
Futures markets
Lead-lag relationship
Energy sector
Costs
Industry
Price discovery
Oils
Oil shocks
Energy sources
Speed of adjustment
Scenarios
Recession
Vector error correction model
Spot market
Business cycles
Transaction costs

All Science Journal Classification (ASJC) codes

  • Energy(all)
  • Economics, Econometrics and Finance(all)

Cite this

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The lead lag relationship between spot and futures markets in the energy sector. / Chen, Jeng-Chung; Prince, Yolanda Gabriela; Ha, Quang An.

In: International Journal of Energy Economics and Policy, Vol. 7, No. 4, 01.01.2017, p. 23-30.

Research output: Contribution to journalArticle

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