An examination of the flow characteristics of crude oil: evidence from risk-neutral moments
Date
2015-10-10
Authors
Chatrath, Arjun, author
Miao, Hong, author
Ramchander, Sanjay, author
Wang, Tianyang, author
Energy Economics, publisher
Journal Title
Journal ISSN
Volume Title
Abstract
This paper examines the information content of risk-neutral moments to explain crude oil futures returns. Implied volatility and higher moments are extracted from observed crude oil option prices using a model-free implied volatility framework and the Black–Scholes model. We find a tenuous and time-varying association between returns and implied volatility and its innovations. Specifically, changes in implied volatility are found to be meaningfully associated with crude returns only over the period spanning the recent financial crisis. The results lead us to conclude that crude oil prices are determined primarily in a flow demand/supply environment. Finally, we document that oil risk is priced into the cross-section of stock returns in the oil and transportation sectors.
Description
Includes bibliographical references (pages 26-29).
Published as: Energy Economics, vol. 54, February 2016, pp. 213-223, https://doi.org/10.1016/j.eneco.2017.09.010.
Published as: Energy Economics, vol. 54, February 2016, pp. 213-223, https://doi.org/10.1016/j.eneco.2017.09.010.
Rights Access
Subject
risk-neutral moments
Stocks -- Rate of return
crude oil futures
volatility