Price Discovery in China's Crude Oil Derivatives Market

Abstract

This study is the first to examine China's Crude Oil options market. Using high-frequency data and three different price discovery measures, we undertake a rigorous analysis and find that after its first 8 months of operation, China's Crude Oil options market contributes meaningfully to price discovery. Factors including volatility, spread, and speculation levels are shown to impact its price discovery ability. We also find a unique phenomenon in China's Crude Oil derivatives markets in that speculation adds more to the price discovery of the futures market compared with the options market, which is consistent with previous findings for the Chicago Mercantile Exchange Natural Gas derivatives market.