An Examination of Price Discovery and Volatility Spillovers of Crude Oil in Globally Linked Commodity Markets

Sanjay Sehgal, Neha Berlia, Wasim Ahmad

Abstract


This paper examines the price discovery and volatility spillovers between spot and futures as well as futures prices of three strategically linked oil markets viz., ICE, MCX and NYMEX from 05 February, 2006 to 15 October, 2012. The results confirm the long-run relationship between futures and spot prices in each market, futures prices lead spot prices in the price discovery process. Analysing the futures prices, we find that ICE is the most dominant futures trading platform followed by NYMEX and MCX in price discovery process. Thus, MCX an emerging market platform seems to act like a satellite market vis-à-vis international platforms. The volatility spillover results suggest that there is a long-term spillover from ICE to MCX and from MCX to NYMEX. The volatility information seems to flow from NYMEX to ICE. The GARCH-CCC & DCC model results confirm both cross market and with in market co-movements which become weak during the crisis period and tend to become stronger during the stable period. The study provides relevant implications for policy makers and market traders. The outcome of this study contributes to commodity market literature especially relating to information transmission between strategically linked markets.

Full Text: PDF DOI: 10.5539/ijef.v5n5p15

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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