Cointegration and US Regional gasoline prices: Testing market efficiency from the stationarity of price proportions

It is well known that oil price shocks are a major concern to the health of the global economy. Unstable oil prices have a significant negative impact on consumer confidence and business decision making. As a result economic recovery may be longer and more complicated. Controlling the global oil price may not be possible, but a main concern of this research relates to energy market efficiency and as to whether relative price differences respond in an appropriate way across the region of one country. Here, the different geographic areas of a country are analysed to see whether they belong to the same market and result in the relative prices being stationary. The gasoline market in different regions of the US is analyzed. It is believed that if the gasoline market is sufficiently active in the US, then as a result of arbitrage, long-run gasoline prices by region should follow each other. In an efficient market, a price shock in one region would be reflected in all other prices. This proposition is tested in an effective manner by a barrage of stationarity tests. This is pertinent as such tests have been applied in antitrust cases in Italy and the Netherlands to determine whether there might be market imperfections or in association with more heuristic information, possible collusion

Extracting long-run information from energy prices: The role of exogeneity

Copyright @ 2013 The AuthorsThis article considers cointegration analysis to detect key features of long-run structure in the gasoline market. The main purpose of this study is to investigate possible long-run price leadership in the US gasoline market and the characteristics relevant to a competitive market using the vector autoregressive model. After examining the stationarity and cointegration of the weekly gasoline prices in eight different regions of the US we research long-run price leadership and parallel pricing in the framework of the cointegrated vector auto-regression (VAR). The problem is considered on extended data on 901 weekly gasoline prices for eight regions of the US. The discovery of a single common trend has been observed for a smaller number of regions, but when the system is estimated across the US it is found that the single common trend cannot be sustained. In addition to this failure the tests of exogeneity suggest that the extent to which regional gasoline prices in the long-run respond to each other is limited