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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Date of creation: 23 Jul 2012
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WTI; Crude Oil Price; Implied Volatility; Leverage Effect; Feedback Effect;
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.
- Chevallier, Julien & Aboura, Sofiane, 2013. "Leverage vs. Feedback: Which Effect Drives the Oil Market ?," Economics Papers from University Paris Dauphine 123456789/9860, Paris Dauphine University.
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
- G1 - Financial Economics - - General Financial Markets
- Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-BEC-2012-08-23 (Business Economics)
- NEP-CWA-2012-08-23 (Central & Western Asia)
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- Sévi, Benoît & Chevallier, Julien, 2013.
"A Fear Index to Predict Oil Futures Returns,"
Economics Papers from University Paris Dauphine
123456789/11714, Paris Dauphine University.
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