[2020-16]
Shanghai Crude Oil Futures: Flagship or Burst?
Joo, Kyohun
Moon Soul Graduate School of Future Strategy, KAIST
Seo, Yongseok
Moon Soul Graduate School of Future Strategy, KAIST
Suh, Jong Hwan
Department of Management Information System, Gyeongsang National University
Ahn, Kwangwon
Department of Industrial Engineering, Yonsei University
Abstract The present study examines the potential of Shanghai crude oil futures as a benchmark in the Asian market. Specifically, we investigate the market efficiency and long-term equilibrium of Shanghai crude oil futures in comparison with global benchmarks, such as West Texas Intermediate, Brent, and Dubai oil futures. Despite the notable difference in market integration between Shanghai crude oil futures and other international benchmarks, we find strong evidence that there is no significant difference between Shanghai crude oil futures and others with respect to market efficiency and long-term equilibrium. We further explain these results using an information flow that is unilateral from global benchmarks to Shanghai crude oil futures. Accordingly, we discuss the policy implications, namely, that regulators would implement open trading policies that would enable Shanghai crude oil futures to further integrate with global benchmarks once Shanghai crude oil futures achieve its initial growth goal. Keywords: Shanghai crude oil; Market efficiency; Equilibrium; Information flow. |