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Risk Premiums and Efficiency in the Market for Crude Oil Futures

Abstract:
The New York Mercantile Exchange's Crude Oil futures contract is investigated for the existence and nature of risk premiums and informational efficiency. During 1983-90, there is some evidence that short-term premiums were positive and covaried with recent volatility. As for efficiency, we find nothing inconsistent with weak-form efficiency, but some apparent violations cf semi-strong efficiency. We argue that, for a number of reasons, such rejections should be interpreted with caution.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Investment and Finance – Trading Strategies and Financial Instruments

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
G13 - Contingent Pricing; Futures Pricing; option pricing

Keywords: Crude oil futures, Risk premiums, Informational efficiency, NYMEX, ARCH-M model

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No2-5


Published in Volume 13, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.