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Event Study of the Crude Oil Futures Market: A Mixed Event Response Model

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  • Berna Karali
  • Shiyu Ye
  • Octavio A Ramirez

Abstract

We extend the distributional event response model (DERM) of Rucker, Thurman, and Yoder (2005) in two ways. First, we develop a mixed event response model (MERM) to allow for possible asymmetric effects, and second, we examine how volatility, in addition to return, changes surrounding an event. We apply our model to the crude oil futures market using 25 years of daily data. Our results show that among the 10 events considered, the 2008 global financial crisis had the largest impact in magnitude on both return and volatility. The location and duration of response patterns are also found to vary across different events, with the financial crises having long-lasting impacts, while truly unanticipated events, such as the September 11 terrorist attacks, having short-lived impacts. Results suggest that simply using an event-day dummy variable would hinder discovering overall market responses to slowly evolving information events.

Suggested Citation

  • Berna Karali & Shiyu Ye & Octavio A Ramirez, 2019. "Event Study of the Crude Oil Futures Market: A Mixed Event Response Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(3), pages 960-985.
    • Handle: RePEc:oup:ajagec:v:101:y:2019:i:3:p:960-985.
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    File URL: http://hdl.handle.net/10.1093/ajae/aay089
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    References listed on IDEAS

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    1. Karali, Berna & Ramirez, Octavio A., 2014. "Macro determinants of volatility and volatility spillover in energy markets," Energy Economics, Elsevier, vol. 46(C), pages 413-421.
    2. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.
    3. Berna Karali & Gabriel J. Power, 2013. "Short- and Long-Run Determinants of Commodity Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(3), pages 724-738.
    4. Randal R. Rucker & Walter N. Thurman & Jonathan K. Yoder, 2005. "Estimating the Structure of Market Reaction to News: Information Events and Lumber Futures Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 482-500.
    5. Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-30.
    6. Thomas W. Hertel & Jayson Beckman, 2011. "Commodity Price Volatility in the Biofuel Era: An Examination of the Linkage between Energy and Agricultural Markets," NBER Chapters, in: The Intended and Unintended Effects of US Agricultural and Biotechnology Policies, pages 189-221, National Bureau of Economic Research, Inc.
    7. Kaufmann, Robert K., 2011. "The role of market fundamentals and speculation in recent price changes for crude oil," Energy Policy, Elsevier, vol. 39(1), pages 105-115, January.
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    Cited by:

    1. Ma, Richie Ruchuan & Xiong, Tao & Bao, Yukun, 2021. "The Russia-Saudi Arabia oil price war during the COVID-19 pandemic," Energy Economics, Elsevier, vol. 102(C).
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    3. Matthew Houser & Berna Karali, 2020. "How Scary Are Food Scares? Evidence from Animal Disease Outbreaks," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(2), pages 283-306, June.

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