Price discovery and risk transfer in the Brent crude oil futures market

Abstract

This paper examines price discovery and risk transfer functions in the Brent crude oil futures market. The results show that the spot and futures prices play a significant role in price discovery but the contribution of futures price are higher at different maturities. Second, the results of cross-contract analysis indicate that futures contract with longer maturity lead price discovery in the oil market. Finally, the crude oil futures price does not perform the risk transfer function in interaction with the spot price in various maturities and between different futures contracts. The findings have important implications for market participants and policy makers.