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Leverage vs. Feedback: Which Effect Drives the Oil Market?

Sofiane Aboura () and Julien Chevallier

Working Papers from HAL

Abstract: This article brings new insights on the role played by (implied) volatility on the WTI crude oil spot 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 determinant for any type of trading strategy based on futures and options on the OVX implied volatility index, and thus 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)
New Economics Papers: this item is included in nep-bec and nep-cwa
Date: 2012-07-23
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00720156
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Journal Article: Leverage vs. feedback: Which Effect drives the oil market? (2013) Downloads
Working Paper: Leverage vs. Feedback: Which Effect Drives the Oil Market ? (2013)
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