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Event Study of the Crude Oil Futures Market: A Mixed Event Response Model
Author(s) -
Karali Berna,
Ye Shiyu,
Ramirez Octavio A.
Publication year - 2019
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aay089
Subject(s) - volatility (finance) , futures contract , event study , futures market , econometrics , economics , event (particle physics) , crude oil , financial economics , financial crisis , geography , engineering , macroeconomics , context (archaeology) , physics , archaeology , quantum mechanics , petroleum engineering
We extend the distributional event response model (DERM) of Rucker, Thurman, and Yoder (2005) in two ways. First, we develop a mixed event response model (MERM) to allow for possible asymmetric effects, and second, we examine how volatility, in addition to return, changes surrounding an event. We apply our model to the crude oil futures market using 25 years of daily data. Our results show that among the 10 events considered, the 2008 global financial crisis had the largest impact in magnitude on both return and volatility. The location and duration of response patterns are also found to vary across different events, with the financial crises having long‐lasting impacts, while truly unanticipated events, such as the September 11 terrorist attacks, having short‐lived impacts. Results suggest that simply using an event‐day dummy variable would hinder discovering overall market responses to slowly evolving information events.