Round Number Effects in Crude Oil Futures Market
40 Pages Posted: 16 Jul 2018
Date Written: June 19, 2018
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
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