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

Bibliographic Data

ID21653449
AuthorsStanislav Anatolyev (0000-0002-2560-0200, CERGE‐EI and New Economic School Prague Czech Republic), Sergei Seleznev (INECO Capital Ltd), Veronika Selezneva (0000-0001-5906-8171, CERGE‐EI Prague Czech Republic, corresponding author)
Year2021
Volume36
Issue7
Pages938-961
Publication date2021-11-01
Open AccessYes
TypeARTICLE
VenueJournal of Applied Econometrics (JOURNAL)
Journal identifiersISSN: 1099-1255 • E-ISSN: 0883-7252
PublisherWiley (PUBLISHER • GB)
DOI10.1002/jae.2841
OpenAlexW3177702489
LanguageEN
References cited40

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

Econometrics · Economics · Financial economics · Financial market · Futures contract · Futures market · Monetary economics · Oil price · Statistic · Financial Markets and Investment Strategies · Market Dynamics and Volatility · Monetary Policy and Economic Impact · Finance

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