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Is the price of crude responsive to macroeconomic news? A test of the stock-flow hypothesis




Chatrath, Arjun, author
Miao, Hong, author
Ramchander, Sanjay, author
Journal of Futures Markets, publisher

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A recent study indicates that the daily price of crude oil is mostly unresponsive to macroeconomic news, at times exhibiting response-coefficients that carry the "wrong sign". The study concludes that the price of crude oil is predetermined to macro aggregates, and hence determined in a flow demand and flow supply framework. We make the economic argument that inferences on commodity price determination should be drawn from news responses only after the standard tests are subject to inventory (or stock) controls. Using both daily and intraday data for crude oil, and using rudimentary tools to isolate perceived inventory levels, we test for the stock-flow hypothesis for crude oil. We find only weak evidence on the role of inventory levels for crude oil. We also assess the extent to which the dynamics of the dollar plays in the results, and find its role to be limited. Overall, the prior conclusion that crude oil is priced primarily in a flow-environment is supported by our data. The initial (intraday) response in energy prices to macro news appears to be the result of noise trading.


Includes bibliographical references (pages 26-28).
Published as: Does the price of crude oil respond to macroeconomic news?, Journal of Futures Markets, vol.32, no. 6, pp.536-559, June 2012,

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