Abstract
A modified model for testing market efficiency is presented, with introducing convenience yield and using lagged spot prices to adjust risk premium. Subsequently, an examination about market efficiency in international petroleum markets is given using the modified model for three widely traded oil commodities: WTI crude oil, unleaded gasoline, and heating oil. The main findings are that there have significant differences about market efficiency in different oil futures markets, and a nonlinear relationship among spot price, futures price, risk premium, and convenience yield is found in the crude oil market but not in refined oil markets. The nonlinear relationship can be eliminated through dividing the observed period into several stages. Meanwhile, the crude oil futures market is more and more efficient.
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