INFORMATIONAL EFFICIENCY OF PETROLEUM PRODUCT FUTURES MARKETS

This dissertation investigates the informational efficiency of futures markets for refined petroleum products, including gasoline, heating oil, and propane. Specific tests of market efficiency proposed in the study are based on a dynamic model of the simultaneous, rational expectations equilibrium of the futures and cash markets for a storable commodity. The general conditions for this equilibrium are derived from the individual specifications of the economic determinants of supply and demand for futures contracts by three groups of traders--producers, consumers, and pure speculators. Traders' decisions are assumed to reflect maximizations of the expected utility of net cash flow over a two-period planning horizon.;A basic conclusion of the dissertation is that there is an efficient markets basis for observed systematic biases in the predictive power of futures prices. Significantly, this result is obtained with no specific assumptions of differences in risk attitudes or information costs among traders, as is common in other explanations of biasedness. Differences between the futures price and the expected future cash price in equilibrium are shown to be explainable in terms of the independent cash market risks faced by the various futures market participants.;The model indicates certain properties of futures prices that should be expected in equilibrium if those prices reflect full information. The study focuses on three basic issues that have stimulated extensive research in the economic literature on informational efficiency of futures markets. First, is the current futures price an unbiased estimator of the future cash price? Second, is there serial correlation in futures price movements? And third, how is the variability of the futures price related to the variability of the cash price? Empirical tests of market efficiency focus on the predictive power of futures prices and on the rational expectations basis for futures prices.