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Risk Premiums and Efficiency in the Market for Crude Oil Futures

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.