Revisiting the relationship between spot and futures oil prices: Evidence from quantile cointegrating regression

Since most real decisions depend upon current market states or whether it is advantageous to the participants themselves, this paper revisits the relationship between spot and futures oil prices of West Texas Intermediate covering 1986 to 2009 with an innovative approach named quantile cointegration. Different to previous perspectives, we target the issues of cointegrating relationships, causalities, and market efficiency based on different market states under different maturities of oil futures. In our empirical analysis, except for market efficiency, long-run cointegrating relationships and causalities between spot and futures oil prices have significant differentials among futures maturities and the performances of spot oil markets. Furthermore, the response of spot prices to shocks in 1-month futures oil prices is much steeper in high spot prices than in low spot prices. This phenomenon is consistent with the prospect theory (Kahneman and Tversky, 1979), in that the value function is generally steeper for losses than for gains.