The Price discovery function in relationship between Iran's oil spot market and West Texas Intermediate Futures Market

Document Type : Research Paper

Authors

1 Shahid Chamran University of Ahvaz

2 a

Abstract

The relationship between spot and futures markets and how the causal relationship between these markets is one of the important issues that its identification has a great impact on the planning of the actors of these markets and the forecast of future prices of a basic asset. In this study, the price discovery function has been investigated in relationship between Iran's oil spot market and West Texas Intermediate Futures market. For this purpose, the linear causality test based on VECM equations and the non-linear causality test of Toda Yamamoto, as well as monthly data including the Iran's oil spot prices and the one-to-three month futures prices of the World Oil Market (WTI) has been used during the period of December 2002 Until January 2018. The results show that the linear and nonlinear Granger causality has been from the Iran's oil spot market to the world oil futures market, and the reverse is not true.This finding confirms the dominant role of the Iran's oil spot market in price discovery of the world oil futures market.Therefore, the expected price discovery function for the WTI Futures market has not happened. According  to the results of the VAR-based response functions, The WTI futures market has been an follower market and also the Iran's oil spot market is a leader market in the transmission of price fluctuations.

Keywords

References

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new economy and trad
Volume 15, Issue 3
March 2021
Pages 141-164

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History

  • Receive Date: 12 April 2020
  • Revise Date: 01 July 2020
  • Accept Date: 25 July 2020

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