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The impact of liquidity on volatility and price discovery: Evidence from China and international crude oil futures

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  • Shi, Haoyu
  • Zheng, Xu

Abstract

This study provides high-frequency evidence on realized volatility (RV) and price discovery in international crude oil futures using a synchronized 15-minute dataset (2018–2025) across the International Energy Exchange (INE), West Texas Intermediate (WTI), and Brent markets. Using a market microstructure framework incorporating liquidity, trading-session heterogeneity, and volatility components, we examine how these factors jointly shape volatility dynamics and cross-market information flows. Decomposing INE daytime and nighttime sessions reveals strong asymmetries. Specifically, liquidity effects are intensified during the INE nighttime session, when global market activity is high. Further, variations in market depth and order flow amplify the influence of weekly and monthly volatility. Medium-term volatility enhances price discovery, whereas long-term volatility reduces INE’s contribution while reinforcing WTI’s role as a global benchmark. Market liquidity measures are positively associated with information share, while intraday jumps contribute to price discovery primarily during the INE daytime session. Overall, session-specific liquidity and volatility play a critical role in shaping risk dynamics and information transmission in high-frequency crude oil futures markets.

Suggested Citation

  • Shi, Haoyu & Zheng, Xu, 2026. "The impact of liquidity on volatility and price discovery: Evidence from China and international crude oil futures," Energy Economics, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:eneeco:v:160:y:2026:i:c:s0140988326003476
    DOI: 10.1016/j.eneco.2026.109468
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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