An Analysis of Investor Behaviour and Information Flows Surrounding the Negative WTI Oil Price Futures Event

52 Pages Posted: 16 Mar 2022

See all articles by Shaen Corbet

Shaen Corbet

Dublin City University ; University of Waikato - Management School

Greg Hou

University of Waikato - Management School

Yang Hu

University of Waikato - Management School

Les Oxley

University of Waikato - Department of Economics and Finance; University of Waikato

Date Written: February 1, 2022

Abstract

Intertwined with the persisting effects of the COVID-19 pandemic on the world economy, the price of WTI crude oil futures became negative on April 20, 2020. This anomalous incident has drawn much attention within the literature. This paper attempts to investigate the origins and specific impacts of the negative pricing event on the price discovery of WTI futures by employing a bivariate VECM-DCC-GARCH-SNP model, incorporating Legendre polynomials, where the dynamics of major information share measures at high-frequency time intervals are uncovered. Time-varying patterns of information share are identified across the period surrounding negative WTI prices. In particular, price discovery effects steadily abate after a sharp shock during the eight weeks before the negative pricing event. Peak price discovery differentials then re-occur within the negative-pricing event, before once again abating. Such results verify CFTC concerns surrounding the peculiarity of WTI futures trading conditions, that is, the conditions for the negative pricing event were well-established in the weeks before April 2020. Our results shed light on stylised evidence relating to the information efficiency of the international crude oil market more generally.

Keywords: Information Flows; Price Discovery; Oil; Crises; Negative Prices; Volatility.

Suggested Citation

Corbet, Shaen and Hou, Greg and Hu, Yang and Oxley, Les, An Analysis of Investor Behaviour and Information Flows Surrounding the Negative WTI Oil Price Futures Event (February 1, 2022). Energy Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4023724

Shaen Corbet (Contact Author)

Dublin City University ( email )

Dublin 9
Ireland

University of Waikato - Management School ( email )

Hamilton
New Zealand

Greg Hou

University of Waikato - Management School ( email )

Hamilton
New Zealand

Yang Hu

University of Waikato - Management School ( email )

Te Raupapa
Private Bag 3105
Hamilton, Waikato 3240
New Zealand

Les Oxley

University of Waikato - Department of Economics and Finance ( email )

Private Bag 3105
Hamilton, 3105
New Zealand

University of Waikato ( email )

Hamilton
New Zealand

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