The Lead Lag Relationship between Spot and Futures Markets in The Energy Sector

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 o...

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Bibliographic Details
Published in:International journal of energy economics and policy 2017, Vol.7 (4), p.23
Main Authors: Jeng-Chung, Victor Chen, Prince, Yolanda Gabriela, Quang An Ha
Format: Article
Language:English
Subjects:
Futures market
Online Access:Get full text
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Summary: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.
ISSN:2146-4553
2146-4553