Price discovery in energy markets

- We analyze price discovery in futures and spot markets for crude oil, heating oil & natural gas.
- Futures and spot prices are cointegrated for the crude oil, heating oil and natural gas.
- Price discovery mainly takes place in the futures markets for heating oil and natural gas.
- Price discovery takes place in both the futures and spot markets for crude oil.

In this study, we empirically analyze the price discovery process in the futures and spot markets for crude oil, heating oil and natural gas using daily closing prices. We use two different information share measures that are based on the methods proposed by Gonzalo and Granger (1995) and Lien and Shrestha (2014). Both measures indicate that almost all the price discovery takes place in the futures markets for the heating oil and natural gas. However, for the crude oil, the price discovery takes place both in the futures and spot markets. As a whole, our study indicates that futures markets play an important role in the price discovery process.