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

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Date
2013-09
Link to item file
http://halshs.archives-ouvertes.fr/halshs-00720156
Dewey
Economie financière
Sujet
Feedback Effect; Leverage Effect; Implied Volatility; Crude Oil; WTI
JEL code
Q.Q4.Q40; G.G1.G10; C.C4.C40
Journal issue
Finance Research Letters
Volume
10
Number
3
Publication date
09-2013
Article pages
131-141
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.frl.2013.05.003
URI
https://basepub.dauphine.fr/handle/123456789/9860
Collections
  • DRM : Publications
Metadata
Show full item record
Author
Chevallier, Julien
status unknown
Aboura, Sofiane
1032 Dauphine Recherches en Management [DRM]
Type
Article accepté pour publication ou publié
Item number of pages
15 pages
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.

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