Leverage vs. Feedback: Which Effect Drives the Oil Market ?
AbstractThis article brings new insights on the role played by (implied) volatility on the WTI crude oil spot price. An increase in the volatility subsequent to an increase in the oil price (i.e. inverse leverage effect) remains the dominant effect as it might reflect the fear of oil consumers to face rising oil prices. However, this effect is amplified by an increase in the oil price subsequent to an increase in the volatility (i.e. inverse feedback effect) with a two-day delayed effect. This lead-lag relation between the oil price and its volatility is determinant for any type of trading strategy based on futures and options on the OVX implied volatility index, and thus is of interest to traders, risk- and fund-managers.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/9860.
Date of creation: Sep 2013
Date of revision:
Publication status: Published in Finance Research Letters, 2013, Vol. 10, no. 3. pp. 131-141.Length: 10 pages
Feedback Effect; Leverage Effect; Implied Volatility; Crude Oil; WTI;
Other versions of this item:
- Aboura, Sofiane & Chevallier, Julien, 2013. "Leverage vs. feedback: Which Effect drives the oil market?," Finance Research Letters, Elsevier, vol. 10(3), pages 131-141.
- Sofiane Aboura & Julien Chevallier, 2012. "Leverage vs. Feedback: Which Effect Drives the Oil Market?," Working Papers halshs-00720156, HAL.
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
- G1 - Financial Economics - - General Financial Markets
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
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