Round Number Effects in Crude Oil Futures Market

40 Pages Posted: 16 Jul 2018

See all articles by Ro Cho

Ro Cho

Massey University, College of Business, School of Economics and Finance

Mei Qiu

Massey University - College of Business

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: June 19, 2018

Abstract

We find excess buying just below round numbers ($X.99) and excess selling just above round numbers ($X.01) using tick data of 152 million West Texas Intermediate crude oil futures transactions from January 1996 to October 2015. The round number effects were stronger in a regime of open outcry than that of electronic trading system. Conditional trade direction analysis reveals the round number effect in oil futures is consistent with the threshold trigger effect. Hedgers (speculators) take short (long) net positions just above (below) round numbers and drive round number effects. Excess selling just above round numbers are associated with higher market illiquidity and higher market volatility, but excess buying just below round numbers are associated with higher market liquidity. The 24-hour returns to trades based on round number effects are significantly negative.

Keywords: Round Number Effects, Price Clustering, Buy-Sell Imbalance, Open Outcry Auction, Electronic Trading, Hedger

JEL Classification: G10, G11, G14

Suggested Citation

Cho, Ro and Qiu, Mei and Visaltanachoti, Nuttawat, Round Number Effects in Crude Oil Futures Market (June 19, 2018). Available at SSRN: https://ssrn.com/abstract=3199196 or http://dx.doi.org/10.2139/ssrn.3199196

Ro Cho

Massey University, College of Business, School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Mei Qiu

Massey University - College of Business ( email )

New Zealand
0064-9-4140800 ext 9281 (Phone)

Nuttawat Visaltanachoti (Contact Author)

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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