OPEC News Announcement Effect on Volatility in the Crude Oil Market

A Reconsideration

Rangan Gupta, Chi Keung Lau, Seong-Min Yoon

Research output: Contribution to journalArticle

Abstract

This paper uses a nonparametric quantile-based methodology to analyse the predictive ability of OPEC meeting dates and production announcements on (Brent Crude and West Texas Intermediate) oil a measure of futures market volatility that is robust to jumps. We found a nonlinear relationship between oil futures volatility and OPEC-based predictors; hence, linear Granger-causality tests are misspecified and the linear model results of nonpredictability are unreliable. Results of the quantile-causality test show that OPEC variables’ impact on oil futures markets is restricted to Brent Crude futures, with no effect observed for the WTI market. Specifically, OPEC production announcements and meeting dates predict only lower quantiles of the conditional distribution of Brent futures market volatility – a much weaker result compared to when volatility models used in the literature are not robust to jump and outliers.
Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalAdvances in Decision Sciences
Volume23
Issue number4
Early online date28 Oct 2019
Publication statusPublished - 1 Dec 2019
Externally publishedYes

Fingerprint

Volatility
Crude oil
Quantile
Date
Jump
Granger Causality
Conditional Distribution
Causality
Outlier
Predictors
Linear Model
Predict
Market
Financial markets
Oils
Oil markets
Announcement effect
News announcements
Methodology
Oil

Cite this

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abstract = "This paper uses a nonparametric quantile-based methodology to analyse the predictive ability of OPEC meeting dates and production announcements on (Brent Crude and West Texas Intermediate) oil a measure of futures market volatility that is robust to jumps. We found a nonlinear relationship between oil futures volatility and OPEC-based predictors; hence, linear Granger-causality tests are misspecified and the linear model results of nonpredictability are unreliable. Results of the quantile-causality test show that OPEC variables’ impact on oil futures markets is restricted to Brent Crude futures, with no effect observed for the WTI market. Specifically, OPEC production announcements and meeting dates predict only lower quantiles of the conditional distribution of Brent futures market volatility – a much weaker result compared to when volatility models used in the literature are not robust to jump and outliers.",
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OPEC News Announcement Effect on Volatility in the Crude Oil Market : A Reconsideration. / Gupta, Rangan ; Lau, Chi Keung; Yoon, Seong-Min .

In: Advances in Decision Sciences, Vol. 23, No. 4, 01.12.2019, p. 1-22.

Research output: Contribution to journalArticle

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