Information Content of the Limit Order Book for Crude Oil Futures Price Volatility

49 Pages Posted: 19 Aug 2016 Last revised: 30 Apr 2019

See all articles by Xiao Tian

Xiao Tian

La Trobe University

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Petko S. Kalev

La Trobe Business School

Date Written: August 18, 2016

Abstract

This paper investigates the information content of the limit order book on future volatility in the crude oil futures market. We propose a time-weighted limit order book slope that incorporates the duration of each bid and ask update. When volatility is expected to increase around weekly announcements on physical crude oil inventory, we observe that the limit order book slope decreases significantly. We also show that the time-weighted limit order book slope is informative about price volatility one day ahead. Overall, our findings illustrate the importance of the limit order book as a conduit for volatility information.

Keywords: Crude oil futures; Energy market information releases; Futures price volatility; Time-weighted limit order book slope

JEL Classification: C35, G15, G25, G29

Suggested Citation

Tian, Xiao and Duong, Huu Nhan and Kalev, Petko S., Information Content of the Limit Order Book for Crude Oil Futures Price Volatility (August 18, 2016). Energy Economics, Forthcoming; 29th Australasian Finance and Banking Conference 2016. Available at SSRN: https://ssrn.com/abstract=2825857 or http://dx.doi.org/10.2139/ssrn.2825857

Xiao Tian

La Trobe University ( email )

Plenty Road & Kingsbury Drive
Melbourne, 3086
Australia

Huu Nhan Duong (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

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