Research On Efficiency Of Shanghai Crude Oil Future Market Under The Background Of The COVID-19 Crisis

Since the launch of Shanghai crude oil futures,whether China’s crude oil futures trading market plays an important role in price discovery and stabilizing the spot price market is an important key for investors to conduct risk management.Due to the outbreak of COVID-19,the international supply and demand of crude oil has decreased significantly,and the international crude oil price has fluctuated more sharply.In April2020,the negative price of WTI crude oil futures has brought greater uncertainty to the international crude oil futures market.Therefore,the research objective of this paper is to measure and evaluate the operation efficiency of Shanghai crude oil futures market from the domestic market and international market,to explore its role of price discovery,price stabilization,and volatility spillover.In terms of domestic market,based on VECM model and Information Share Metrics,the results show that there is only a uni-directional relationship of the spot price to futures price,and spot plays a leading role in price discovery.The launch of Shanghai crude oil futures contracts has paly the role of stabilizing the spot prices volatility.The additional research on the microcosmic mechanism of Shanghai crude oil futures indicates that crude oil futures market mainly influences the spot market fluctuation through the behavior of traders: speculation increases price volatility in the spot market while hedging mitigate the price volatility.Regarding international oil markets,this study examines the price discovery of three international crude oil futures markets(WTI,Brent,INE)before and after the outbreak of the COVID-19 with the application of information share and component share model.Our study shows that there is a structural break of the date of March 6,2020 in each price series with Zivot and Andrew’s unit root tests.Using Gregory and Hansen cointegration tests,cointegration relationships with structural break in May,2020 are detected.According to results of Information Share(IS)and Component Share(CS)measures Brent futures price mainly plays a leading role of WTI and INE futures price and occupies an absolute dominant position all the time in the three crude oil futures markets systems.In the post-covid period,the price discovery efficiency of INE has been improved slightly but is still weak compared with other two markets.After the outbreak of COVID-19,the dominant position in price contribution in the relationship with INE has transferred from Brent to WTI.These conclusions,apart from offering a much better understanding of the operating efficiency of Shanghai crude oil futures market,may have important implications for helping the regulators to optimize the design of futures contract in Shanghai Crude oil futures and guide them to take different market supervision measures on traders’ behavior under the background of the COVID-19 crisis.