Abstract
The price discovery mechanism between futures prices and spot prices in oil markets has been a controversial subject for decades. Due to the different patterns between various scales of oil prices, this paper targets this issue from a multi-scale perspective, which is different from previous studies. With the help of MEMD and PDC, we re-examine the relationships between spot and futures oil prices of WTI. The MEMD method decomposes the prices into short-run oscillatory modes and long-run trend modes, and then PDC is applied to explore causality in the frequency domain. In the empirical analysis, the role of futures markets in providing an efficient price for the spot market is verified. This price discovery mechanism varies according to the analyzing scale: 3-month futures prices lead the spot and 1-month futures prices primarily in high-frequency oscillatory modes, while 1-month futures prices lead the two other prices in lower-frequency oscillatory modes. Our findings reveal a deeper dependence structure between spot and futures prices for crude oil and hence may provide helpful guidance for investors and policy makers.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
