ECIN Replication Package for "New Evidence on Crude Oil Market Efficiency"

This paper examines the efficient market hypothesis (EMH) in crude oil in the face of the "financialization of the commodity markets" and the "fracking revolution". The generalized spectral derivative test (Hong and Lee 2005) is applied to test market efficiency in both spot and futures markets of WTI and Brent benchmarks. A stochastic dominance test (Linton et al. 2005) is used to investigate arbitrage opportunities across markets and across benchmarks. We find that financialization of the commodity markets has made each market more efficient but also created more arbitrage opportunities in spot-futures markets at both benchmarks. Fracking revolution fragmented oil markets and drove huge price differentials across benchmarks, yet it made little impact on market efficiency in individual markets or between markets.