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Leverage vs. Feedback: Which Effect Drives the Oil Market ?

Chevallier, Julien; Aboura, Sofiane (2013), Leverage vs. Feedback: Which Effect Drives the Oil Market ?, Finance Research Letters, 10, 3, p. 131-141. 10.1016/j.frl.2013.05.003

Type
Article accepté pour publication ou publié
External document link
http://halshs.archives-ouvertes.fr/halshs-00720156
Date
2013-09
Journal name
Finance Research Letters
Volume
10
Number
3
Publisher
Elsevier
Pages
131-141
15 pages
Publication identifier
10.1016/j.frl.2013.05.003
Metadata
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Author(s)
Chevallier, Julien

Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Abstract (EN)
This 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.
Subjects / Keywords
Feedback Effect; Leverage Effect; Implied Volatility; Crude Oil; WTI
JEL
Q40 - General
G10 - General
C40 - General

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