Testing the efficiency of the futures market for crude oil using weighted least squares

It is well known that parameter estimates obtained from ordinary least squares can be distorted by outliers. Given the dramatic fluctuations observed in the price of crude oil, it is surprising that the robustness of parameter estimates has not been scrutinized more closely. This article investigates the efficiency of the New York futures market for crude oil using the basis regression. In addition to ordinary least squares, the model's parameters are estimated using weighted least squares and trimmed least squares. The results suggest that the presence of outliers may distort parameter estimates obtained from ordinary least squares away from a finding of an inefficient futures market.