Crude oil futures trading and uncertainty
Robert Czudaj ()
Energy Economics, 2019, vol. 80, issue C, 793-811
This paper examines the effect of different dimensions of uncertainty on expectations of WTI crude oil futures momentum traders at a daily level. We consider two concepts of uncertainty and two momentum trading indicators based on technical analysis. In addition, we also use wavelet techniques to decompose crude oil futures prices into different frequencies accounting for investors' sentiment at various horizons. To allow for different effects on the propagation mechanism of uncertainty shocks, we apply a time-varying Bayesian VAR approach. Our findings indicate that both measures of uncertainty affect momentum trading on the crude oil futures market in several periods, especially during the great recession between 2007 and 2009. For the decomposed futures prices our results also show that the reaction to uncertainty differs substantially across frequencies. High frequencies exhibit a very short-lived reaction to uncertainty while low frequencies show a persistent reaction to uncertainty shocks.
Keywords: Crude oil futures; Technical analysis; Time-varying Bayesian VAR; Uncertainty; Wavelets (search for similar items in EconPapers)
JEL-codes: C32 G13 Q47 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:80:y:2019:i:c:p:793-811
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