A1599
Title: Overpersistence of oversupply: Measuring perceived persistence of oil shocks
Authors: Veronika Selezneva - CERGE-EI (Czech Republic) [presenting]
Stanislav Anatolyev - CERGE-EI and New Economic School (Czech Republic)
Sergei Seleznev - (Russia)
Abstract: The oil market in the US is going through a major transformation due to the shale boom, creating temporary supply and demand imbalances along the way. We aim to estimate a perceived persistence of these shocks by market participants in the oil futures market. We use announcements about oil inventories to identify the imbalance shocks. We estimate an ARX-ARCHX-ACDX model of joint dynamics of returns, return volatilities and trading volumes around the announcements using high frequency data (5-second time intervals) on short and long maturity oil futures contracts. Long contracts are critical to distinguish shocks by persistence, as the effects of temporary shocks should vanish with maturity. Our model (i) handles illiquidity of long maturity contracts by explicitly accounting for trading inactivity; (ii) sheds light on the idiosyncratic trading behavior, capturing time varying trading intensity; and (iii) allows for structural changes in the dynamics and response to news over time, while also accounting for a unique sequential nature of oil stocks announcements. We find a complex and asymmetric response of the term structure curve to news, and document its evolution over time. Trading intensity differs substantially across contract maturities. We use our results to contribute to the debate on the nature of three recent major oil price shifts.
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