A wavelet analysis of oil price volatility dynamic
In this the paper we investigate the oil price volatility, by studying the causal relationships between different volatilities captured at different time scales. We first decompose the oil price volatility at various scales of resolution or frequency ranges by using wavelet analysis. We then explore the causalities between absolute returns of oil prices at different time scales. As traditional Granger causality test, designed to detect linear causality, is ineffective in uncovering certain nonlinear causal relationships, we use the nonlinear causality test introduced by Péguin-Feissolle and Teräsvirta (1999) and Péguin-Feissolle, Strikholm and Teräsvirta (2008). Our results confirm the fact that the vertical dependence is a strong stylised fact of oil returns volatility. But, the main finding consists on the presence of a feed- back effect from high frequency traders to low frequency traders. In contrast to Gençay et al. (2010), we prove that high frequency shocks could have an impact outside their boundaries and reach the long term traders.
Volume (Year): 31 (2011)
Issue (Month): 1 ()
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- Virginie Coudert & Valérie Mignon & Alexis Penot, 2008. "Oil Price and the Dollar," Post-Print halshs-00353404, HAL.
- Benassy-Quere, Agnes & Mignon, Valerie & Penot, Alexis, 2007.
"China and the relationship between the oil price and the dollar,"
Elsevier, vol. 35(11), pages 5795-5805, November.
- Agnès Bénassy-Quéré & Valérie Mignon & Alexis Penot, 2005. "China and the Relationship Between the Oil Price and the Dollar," Working Papers 2005-16, CEPII research center.
- Agnès Bénassy-Quéré & Valérie Mignon, 2008. "China and the relationship between the oil price and the dollar," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00634796, HAL.
- Alexis Penot & Agnès Bénassy-Quéré & Valérie Mignon, 2007. "China and the relationship between the oil price and the dollar," Post-Print halshs-00201394, HAL.
- Péguin-Feissolle, Anne & Strikholm, Birgit & Teräsvirta, Timo, 2007. "Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form," SSE/EFI Working Paper Series in Economics and Finance 672, Stockholm School of Economics, revised 18 Jan 2012.
- Anne Péguin-Feissolle & Birgit Strikholm & Timo Teräsvirta, 2008. "Testing the Granger noncausality hypothesis in stationary nonlinear models of unknown functional form," CREATES Research Papers 2008-19, Department of Economics and Business Economics, Aarhus University.
- Ramazan Gencay & Nikola Gradojevic & Faruk Selcuk & Brandon Whitcher, 2010. "Asymmetry of information flow between volatilities across time scales," Quantitative Finance, Taylor & Francis Journals, vol. 10(8), pages 895-915.
- Ramazan Gencay & Faruk Selcuk, 2004. "Asymmetry of Information Flow Between Volatilities Across Time Scales," Econometric Society 2004 North American Winter Meetings 90, Econometric Society.
- Ramazan Gencay & Nikola Gradojevic & Faruk Selcuk & Brandon Whitcher, 2009. "Asymmetry of Information Flow Between Volatilities Across Time Scales," Working Paper Series 27_09, The Rimini Centre for Economic Analysis.
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