Fundamentals, Derivatives Market Information and Oil Price Volatility

Robe, Michel A.; Wallen, Jonathan

doi:10.2139/ssrn.2505492

Cited by 12 publications

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“…Similar to Robe and Wallen (2016), we show that financial market sentiment, the state of commodity inventories, and exogenous supply shocks are key to understanding commodity volatility expectations. Unlike for crude oil, however, we find for softs that the intensity of financial speculation in the U.S. futures markets where coffee or sugar price discovery takes place is a statistically significant predictor of forward-looking price uncertainty.…”

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confidence: 60%

“…In the equity space, Mixon (2002), Guo, Han, and Zhao (2014), and Andreou and Ghysels (2014) link the implied volatility surface for the S&P 500 index to macroeconomic variables. In the energy space, Robe and Wallen (2016) show that the (equity-market) VIX and physical-market fundamentals both affect crude oil implied volatilities. In a contemporaneous working paper, Adjemian, Bruno, Robe and Wallen (2016) carry out a structural analysis of what drives 3 There also exists a large parallel literature on realized volatility in commodity markets.…”

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“…In a contemporaneous working paper, Adjemian, Bruno, Robe and Wallen (2016) carry out a structural analysis of what drives 3 There also exists a large parallel literature on realized volatility in commodity markets. It consists mostly of GARCH modeling or forecasting studies of realized commodity price volatility -see Robe and Wallen (2016) for a review. Closer to our approach are studies by Ng and Pirrong (1994), Karali and Power (2013), and Watugala (2015) that seek to link price volatility in commodity markets to select macroeconomic factors, physical fundamentals, or financial market frictions; those three studies, however, look at realized volatility rather than volatility expectations.…”

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Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty

Covindassamy¹,

Robe²,

Wallen³

2017

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. We thank Osmel Manzano, Guillermo Lagarda Cuevas, and Scott Irwin for helpful discussions, and brownbag seminar participants at the Inter-American Development Bank (IDB) and the U.S. Commodity Futures Trading Commission (CFTC) for helpful comments and suggestions. We are grateful to Casey Petroff for her help with the public trader position data, to Emré Robe for his help with the construction of the weather variables, and to Lutz Kilian for his help with indicators of global economic conditions. The first draft of this paper was written while Robe was a consultant to, and Covindassamy was a research assistant at, the IDB. Robe was also a consulting senior economist with the CFTC during the same period. No CFTC compensation was received, and no CFTC resources or proprietary information were used, for this project. The opinions expressed in this paper are those of the authors: they do not reflect the views of other CFTC staff, the Commission itself, or the United States government; or the IDB or the shareholder governments. Errors and omissions, if any, are the authors' sole responsibility. 1Sugar with your Coffee? Financials, Fundamentals, and Softs Price Uncertainty AbstractWe investigate empirically the factors related to price uncertainty in the markets for two key Central American commodities: coffee and sugar ("softs"). Specifically, we analyze the predictive powe...

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Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty

Covindassamy¹,

Robe²,

Wallen³

2017

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“…Bansal, Kiku, Shaliastovich, and Yaron (2014) argue that macroeconomic volatility risk is an important determinant of asset prices. Robe and Wallen (2014) …nd strong interactions between option implied oil volatility and global macroeconomic conditions. Bakshi and Chen (1996) argue speci…cally that uncertainty in commodity prices is a state variable because it a¤ects the set of available consumption goods and investment opportunities and therefore investors'portfolio choices and stock prices.…”

Section: Forecasting Stock Market Return and Volatilitymentioning

confidence: 99%

Oil volatility risk and expected stock returns

Christoffersen

Pan

2018

Journal of Banking & Finance

108

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After the …nancialization of commodity futures markets in 2004-05 oil volatility has become a strong predictor of returns and volatility of the overall stock market.Furthermore, stocks'exposure to oil volatility risk now drives the cross-section of expected returns. The di¤erence in average return between the quintile of stocks with low exposure and high exposure to oil volatility is signi…cant at 0.66% per month, and oil volatility risk carries a signi…cant risk premium of -0.60% per month. In the post…nancialization period, oil volatility risk is strongly related with various measures of funding liquidity constraints suggesting an economic channel for the e¤ect. JEL Classi…cations: G12, G13, E44, Q02

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“…Crude oil is the commodity which is most dynamically traded worldwide and oil prices have very high volatility, which has been obvious in the past fi fteen years (Robe et al, 2016).…”

Section: Oil and Gas Futures Marketsmentioning

confidence: 99%

Oil and Gas Futures and Options Market

Nosić¹,

Sedlar

Jukić

2017

MGPB

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Energy mineral resource markets are represented by complex supply and demand ratios which are depending on diff erent factors such as technical (transport) and geopolitical. The main characteristicof energy markets is represented by an uneven geographic distribution of hydrocarbon reserves and production on one hand, and energy consumption on the other. World oil markets, although geographically localized, because of specifi c market trade, represent a unique global market with a decreasing price diff erence. Price diff erences are the result of the development of transport possibilities of oil supply. The development of transport routes of natural gas and an increasing number of liquefi ed natural gas terminals in the world give pressure to the natural gas market and its integration into the global gas market. The integration of regional gas markets into a common European gas market is the main energy policy of EU concerning natural gas. On the other hand, there are still signifi cant price diff erences on some markets (e.g. United States of America -South East Asia). The development of global energy markets is enabled by the development of futures and options contracts of an energy trade which have replaced bilateral contract deals between producers and consumers. Futures contracts are standardized contracts traded on exchanges. A buyer agrees to buy a certain quantity of stock for an agreed upon price and with some future delivery date. An option is a contract which gives a buyer the option of the right to buy (or sell, depending on the option) an asset at a predetermined price and at a later date. A stock's price risk can be managed with the purchase and selling futures and options contracts. This paper deals with futures and options energy markets and their market strategies.

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Fundamentals, Derivatives Market Information and Oil Price Volatility

Cited by 12 publications

References 39 publications

Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty

Sugar With Your Coffee?: Financials, Fundamentals, and Soft Price Uncertainty

Oil volatility risk and expected stock returns

Oil and Gas Futures and Options Market

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