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Has Crude Oil Become a Financial Asset? Evidence from Ten Years of Financialization

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  • Adams, Zeno

    ()

  • Kartsakli, Maria

    ()

Abstract

The financialization of crude oil markets over the last decade has changed the behavior of oil prices in fundamental ways. In this paper, we uncover the gradual transformation of crude oil from a physical to a financial asset. Although economic demand and supply factors continue to play an important role, recent indicators associated with financialization have emerged since 2008. We show that financial variables have become the main driving factors explaining the variation in crude oil returns and volatility today. Our findings have important implications for portfolio analysis and for the effectiveness of hedging in crude oil markets.

Suggested Citation

  • Adams, Zeno & Kartsakli, Maria, 2017. "Has Crude Oil Become a Financial Asset? Evidence from Ten Years of Financialization," Working Papers on Finance 1710, University of St. Gallen, School of Finance.
  • Handle: RePEc:usg:sfwpfi:2017:10
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Crude Ois; Financialization; R-squared Decomposition;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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