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

Authors

  • Jeng-Chung Victor Chen National Cheng Kung University
  • Yolanda Gabriela Prince National Cheng Kung University
  • Quang An Ha National Cheng Kung University

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.Keywords: Future price, Spot price, Price discovery, Lead Lag Relationship, EnergyJEL Classification: G13

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Author Biographies

Jeng-Chung Victor Chen, National Cheng Kung University

Professor and ChairmanInstitute of International Management, National Cheng Kung University

Yolanda Gabriela Prince, National Cheng Kung University

Institute of International Management,National Cheng Kung University

Quang An Ha, National Cheng Kung University

PhD Student,Institute of International Management,National Cheng Kung University

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Published

2017-09-30

How to Cite

Chen, J.-C. V., Prince, Y. G., & Ha, Q. A. (2017). The Lead Lag Relationship between Spot and Futures Markets in The Energy Sector. International Journal of Energy Economics and Policy, 7(4), 23–30. Retrieved from https://econjournals.com./index.php/ijeep/article/view/5109

Issue

Vol. 7 No. 4 (2017)

Section

Articles

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