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Leverage vs. feedback: Which Effect drives the oil market?

Sofiane Aboura () and Julien Chevallier

Finance Research Letters, 2013, vol. 10, issue 3, 131-141

Abstract: This article brings new insights on the role played by (implied) volatility on the WTI crude oil 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 central to any type of trading strategy based on futures and options on the OVX implied volatility index. It is of interest to traders, risk- and fund-managers.

Keywords: WTI; Crude oil price; Implied volatility; Leverage effect; Feedback effect (search for similar items in EconPapers)
JEL-codes: C4 G1 Q4 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Leverage vs. Feedback: Which Effect Drives the Oil Market ? (2013)
Working Paper: Leverage vs. Feedback: Which Effect Drives the Oil Market? (2012) Downloads
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