Event Study of Energy Price Volatility: An Application of Distributional Event Response Model

We apply the Distributional Event Response Model (DERM), which is appropriate in studying relatively slowly-evolving information events, to nineteen years of daily crude oil futures returns and volatility to analyze the pattern of market responses to selected events. The results show that all the events considered have statistically significant effects on crude oil futures price volatility. The U.S. invasion of Iraq in 2003 and the bankruptcy filing of Lehman Brothers in 2008 are found to have the largest impacts on both daily returns and volatility. In addition, the location and duration of event windows vary across different event. Generally, the largest volatility response to an event is observed after several months following the event, suggesting that simply using an event-day dummy variable would hinder discovering the actual market responses to slowly-evolving events.

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 Record created 2017-04-01, last modified 2018-01-22

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