How does the financial market update beliefs about the real economy? Evidence from the oil market

42 Pages Posted: 23 Jul 2018 Last revised: 29 Apr 2020

See all articles by Stanislav Anatolyev

Stanislav Anatolyev

New Economic School; CERGE-EI

Sergei Seleznev

INECO Capital Ltd

Veronika Selezneva

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: April 15, 2020

Abstract

Oil traders find it challenging to process all information and choose which sources to follow.
Inventories represent a perfect source, as they provide important information regarding real
agents’ intertemporal decisions and can easily be observed in real time. However, inventories
do not contain full information about the state of the oil market. We show that financial
traders fail to acquire additional information and treat inventories as a sufficient statistic. As
a result, the financial market fails to distinguish realized shocks from news shocks, and treats
all shocks as persistent. To confirm this hypothesis, we use oil inventory announcements
to identify market inventory surprises; and we estimate a model of the joint dynamics of
returns and return volatilities around announcements using high frequency data on oil futures
contracts with short and long maturities.

Keywords: oil market, ultra high frequency data, futures returns, inventory surprises, term structure curve, theory of storage

JEL Classification: C22, C32, C58, G12, G13

Suggested Citation

Anatolyev, Stanislav and Seleznev, Sergei and Selezneva, Veronika, How does the financial market update beliefs about the real economy? Evidence from the oil market (April 15, 2020). Available at SSRN: https://ssrn.com/abstract=3205044 or http://dx.doi.org/10.2139/ssrn.3205044

Stanislav Anatolyev (Contact Author)

New Economic School ( email )

Skolkovskoe shosse, 45
Moscow, 121353
Russia

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

Sergei Seleznev

INECO Capital Ltd ( email )

Cyprus

Veronika Selezneva

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

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