Algorithmic Sangfroid? The Decline of Sensitivity of Crude Oil Prices to News on Potentially Disruptive Terror Attacks and Political Unrest

Paweł Mielcarz, Dmytro Osiichuk and Jarosław Cymerski
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Paweł Mielcarz: Department of Finance, Kozminski University, 03-301 Warsaw, Poland
Dmytro Osiichuk: Department of Finance, Kozminski University, 03-301 Warsaw, Poland
Jarosław Cymerski: Department of Humanities, Vistula University, 02-787 Warsaw, Poland

Sustainability, 2020, vol. 13, issue 1, 1-24

Abstract: The paper postulates that enhanced informational efficiency and signal processing capacity, which have characterized the evolution of commodity markets’ architecture during the last two decades, have rendered commodity prices more robust with respect to external shocks. Our econometric analysis of times series over 2001–2015 revealed a persistent decline in the responsiveness of crude oil prices to inflows of information concerning potentially supply-disruptive events. International news on terrorist attacks involving damage to oil infrastructure including those occurring in proximity to oil extraction sites, political unrest, and conflicts of rivaling factions are all documented to exercise a decreasing impact on oil price volatility both over short and medium observation spans. The previously observed spikes in oil prices accompanying similar disruptive events in OPEC countries are also shown to flatten over time as price sensitivity to information shocks declines. The discovered weakening of market response becomes more pronounced from the mid-2000s, which corresponds to the period of rapid algorithmization of commodity trading.

Keywords: oil prices; commodities; informational efficiency (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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