Practical Applications of Information Leakage in Energy Derivatives around News Announcements

Marc Bohmann and Vinay Patel ()
Additional contact information
Marc Bohmann: University of Technology Sydney

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: In Information Leakage in Energy Derivatives around News Announcements, in the Summer 2020 issue of The Journal of Derivatives, authors Marc Bohmann and Vinay Patel (both of the University of Technology Sydney) investigate information leakage in commodity option markets, by taking a close look at abnormal changes in implied volatility spreads and skew that precede price-sensitive news releases. The growth of electronic trading platforms has made it easier to trade commodities, leading to an increase in futures and associated option contracts. These options in turn serve as a venue for information leakage. Focusing on crude oil and natural gas futures, the most highly traded markets on the Chicago Mercantile Exchange (CME), the authors examine the implied volatility (IV) spread and skew. They show an increase in crude oil markets’ IV spread within the five days prior to positive and market-significant news releases, and in their IV skew within the days preceding negative news releases. They also find a statistically significant relationship between these abnormal pre-announcement IV measures and abnormal returns on the date of the official announcement. They report similar results in natural gas markets. These findings are relevant to regulators, investors, and firms in these energy markets, for example, in evaluating whether financial markets work properly.

Keywords: Options (search for similar items in EconPapers)
Pages: 6 pages
Date: 2021-01-01
New Economics Papers: this item is included in nep-ene and nep-mst
References: Add references at CitEc
Citations:

Published in: Bohmann, M. J. and Patel, V., 2021, "Practical Applications of Information Leakage in Energy Derivatives around News Announcements", Practical Applications, 9(1), 1-6.

Downloads: (external link)
https://pa.pm-research.com/content/9/1/1.8 (text/html)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://pa.pm-research.com/content/9/1/1.8 [301 Moved Permanently]--> https://pm-research.com/content/iijpracapp/9/1/1.8 [301 Moved Permanently]--> https://www.pm-research.com/content/iijpracapp/9/1/1.8)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uts:ppaper:2021-3

Access Statistics for this paper

More papers in Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().