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Event Study of the Crude Oil Futures Market: A Mixed Event Response Model

Berna Karali, Shiyu Ye and Octavio Ramirez

American Journal of Agricultural Economics, 2019, vol. 101, issue 3, 960-985

Abstract: We extend the distributional event response model (DERM) of Rucker, Thurman, and Yoder (2005) in two ways. First, we develop a mixed event response model (MERM) to allow for possible asymmetric effects, and second, we examine how volatility, in addition to return, changes surrounding an event. We apply our model to the crude oil futures market using 25 years of daily data. Our results show that among the 10 events considered, the 2008 global financial crisis had the largest impact in magnitude on both return and volatility. The location and duration of response patterns are also found to vary across different events, with the financial crises having long-lasting impacts, while truly unanticipated events, such as the September 11 terrorist attacks, having short-lived impacts. Results suggest that simply using an event-day dummy variable would hinder discovering overall market responses to slowly evolving information events.

Keywords: Crude oil; distributional event response model; event study; futures return; GARCH; volatility (search for similar items in EconPapers)
Date: 2019
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Working Paper: Event Study of Energy Price Volatility: An Application of Distributional Event Response Model (2014) Downloads
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