Abstract
Abstract Oil price is always influenced by market events and thus shakes continually. Especially, recent financial crisis shocks oil price heavily. However, current studies rarely discuss the property of oil price during financial crisis. Since oil price has excess volatility and it can not be described by standard unit root process, this paper adopts stochastic unit root (STUR) to examine the properties of oil spot and futures prices, and employs stochastic cointegration to investigate the long term equilibrium relationship between them during financial crisis. Based on Brent crude oil spot and futures daily prices from July 2007 to June 2009, our empirical analysis shows both oil spot and futures prices are STUR series and have time-varying autoregressive coefficients, which is consistent with excess volatility of oil prices. Moreover, stochastic cointegration relationship does exist between oil spot and futures prices, revealing the long term equilibrium relationship under the influence of financial crisis. In addition, the study has important implications for forecasting and risk management.
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