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An asymmetric volatility analysis of the negative oil price during the first COVID-19 wave

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  • Birnstengel, Carolin
  • Süssmuth, Bernd

Abstract

For the first time ever, oil futures were negatively priced on April 20, 2020. We modify an investment model to fit the financial markets context of information processing and arrival. It is able to explain a negative price dip. Its joint interpretation with estimates from GARCH models captures some central institutional setups of the market. We show not only storage uncertainty, in particular, due to the pandemic, but especially noise induced by non-cash settlement in combination with financialization to lie at the heart of the threshold-like leverage effect. To avoid negative pricing and collusive behavior, freeriding on this leverage effect, either the possibility of cash settlement or the abolition of hedging trade-at-settlement contracts can be considered by regulators.

Suggested Citation

  • Birnstengel, Carolin & Süssmuth, Bernd, 2025. "An asymmetric volatility analysis of the negative oil price during the first COVID-19 wave," International Review of Financial Analysis, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:finana:v:100:y:2025:i:c:s1057521925000468
    DOI: 10.1016/j.irfa.2025.103959
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    More about this item

    Keywords

    Asymmetry; GARCH; Leverage effect; Oil price; Herding behavior;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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