OIL PRICES 171
Unless the Congress of the United States Government offers
some other alternative to imported oil, crude oil prices will lie outside of the sphere of influence of the United States and there will be
price volatile encompassing the variations between extremely low
prices and extremely high prices.
The high price of oil is not palatable or affordable to many
Americans. When the choice comes to a high price or a volatile
price régime where the volatile high price of oil could exceed the
stable high price, one wonders where the choice of the people
might lie.
Finally, price clustering occurs when transaction prices are not
evenly distributed among all possible ending values, but tend to
cluster around even numbers. Price clustering may help traders
simplify negotiations and it may also be an indication of market
quality. Stock prices cluster on round fractions and price clustering
rises with price level and volatility and declines with capitalization
and transaction frequency (Harris, 1991; (Pirrong, 1996; Tse and
Zabotina, 2001).
For related products trading in multiple venues, price discovery is essential in determining the dominant market in terms of the
development of the asset's implicit efficient price. Hence, prices
of regular-size NYMEX futures, NYMEX e-mini futures, WTI ICE
electronic futures, and the USO ETF are strongly related and driven
by the same information.
The prices of the crude oil futures and the USO ETF in different markets are kept from drifting apart because of inter-market
arbitrage. These prices are therefore co-integrated and share one
common factor — the implicit efficient price in which the concept of information shares (IS) is defined the relative contribution
of each market to price discovery (Hasbrouck, 1995). However,
this does not conclude which market has the best price but,
instead, which market moves first in the price-correction process
(Hasbrouck, 2002; Sapp, 2002). In fact, the information share of
a trading market is the portion of the variance of the common
factor that is attributable to innovations in that market and different ordering of the variables will produce lower and upper
bounds of the information shares. Nonetheless, many other studies using lower frequency data present considerable differences
between lower and upper bounds (Martens, 1998; Huang, 2002;
Booth et al., 2002). In fact, the average of the information shares
given by all orderings is a reasonable estimate of the market contribution to the price discovery. Similar to earlier research, we
Unless the Congress of the United States Government offers
some other alternative to imported oil, crude oil prices will lie outside of the sphere of influence of the United States and there will be
price volatile encompassing the variations between extremely low
prices and extremely high prices.
The high price of oil is not palatable or affordable to many
Americans. When the choice comes to a high price or a volatile
price régime where the volatile high price of oil could exceed the
stable high price, one wonders where the choice of the people
might lie.
Finally, price clustering occurs when transaction prices are not
evenly distributed among all possible ending values, but tend to
cluster around even numbers. Price clustering may help traders
simplify negotiations and it may also be an indication of market
quality. Stock prices cluster on round fractions and price clustering
rises with price level and volatility and declines with capitalization
and transaction frequency (Harris, 1991; (Pirrong, 1996; Tse and
Zabotina, 2001).
For related products trading in multiple venues, price discovery is essential in determining the dominant market in terms of the
development of the asset's implicit efficient price. Hence, prices
of regular-size NYMEX futures, NYMEX e-mini futures, WTI ICE
electronic futures, and the USO ETF are strongly related and driven
by the same information.
The prices of the crude oil futures and the USO ETF in different markets are kept from drifting apart because of inter-market
arbitrage. These prices are therefore co-integrated and share one
common factor — the implicit efficient price in which the concept of information shares (IS) is defined the relative contribution
of each market to price discovery (Hasbrouck, 1995). However,
this does not conclude which market has the best price but,
instead, which market moves first in the price-correction process
(Hasbrouck, 2002; Sapp, 2002). In fact, the information share of
a trading market is the portion of the variance of the common
factor that is attributable to innovations in that market and different ordering of the variables will produce lower and upper
bounds of the information shares. Nonetheless, many other studies using lower frequency data present considerable differences
between lower and upper bounds (Martens, 1998; Huang, 2002;
Booth et al., 2002). In fact, the average of the information shares
given by all orderings is a reasonable estimate of the market contribution to the price discovery. Similar to earlier research, we