The Determinants of Volatility on the American Crude Oil Futures Market

18 Pages Posted: 7 Aug 2008

See all articles by Delphine Lautier

Delphine Lautier

University Paris Dauphine

Fabrice Riva

Université Paris-Dauphine, PSL Research University

Abstract

This article focuses on the volatility of crude oil futures prices on the New York Mercantile Exchange. It aims at examining whether this market creates excess volatility, which would not be observed in the absence of such a market. In order to reach this objective, price fluctuations are separated into two components: an information component that reflects a rational assessment of the information arrival, and an error component that represents the noise introduced by the trading process. We show that a significant part of the volatility recorded during exchange trading hours is caused by mispricing errors. In particular, this phenomenon affects the nearest futures contract.

Suggested Citation

Lautier, Delphine and Riva, Fabrice, The Determinants of Volatility on the American Crude Oil Futures Market. OPEC Energy Review, Vol. 32, Issue 2, pp. 105-122, June 2008, Available at SSRN: https://ssrn.com/abstract=1209253 or http://dx.doi.org/10.1111/j.1753-0237.2008.00145.x

Delphine Lautier (Contact Author)

University Paris Dauphine ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

Fabrice Riva

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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