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Explaining intraday crude oil returns with higher order risk-neutral moments

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  • Wong, Patrick

Abstract

High frequency crude oil option data is used to extract the higher order risk-neutral moments from the crude oil market. These risk-neutral moments include the variance, third central moment and the recently developed tail risk variation measures. We find it is beneficial to disaggregate these risk-neutral moments into their semi-moments, and to work with their log differences instead of the level. The log differences of the second and third semi-moments, and to a lesser extent, the log differences of the tail risk measures, are found to explain returns in the crude oil and S&P 500 futures at high frequency. We also provide evidence that the efficient market hypothesis holds at high frequency in these markets.

Suggested Citation

  • Wong, Patrick, 2023. "Explaining intraday crude oil returns with higher order risk-neutral moments," Journal of Commodity Markets, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:jocoma:v:31:y:2023:i:c:s2405851323000211
    DOI: 10.1016/j.jcomm.2023.100331
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    Cited by:

    1. Wang, Cheng & Bouri, Elie & Xu, Yahua & Zhang, Dingsheng, 2023. "Intraday and overnight tail risks and return predictability in the crude oil market: Evidence from oil-related regular news and extreme shocks," Energy Economics, Elsevier, vol. 127(PB).

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    More about this item

    Keywords

    High frequency option data; Higher risk-neutral moments; Crude oil;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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