Abstract:

Does news arrival impact oil futures returns and volatility? Is the impact of negative and positive news on returns and volatility symmetric? This paper answers these questions. We show in a model free environment that CME oil futures returns are affected by news arrival. The impact of negative and positive news information has an asymmetric impact on returns and volatility. We find that the number of news items arriving per day varies over time and the arrival processes for negative and positive news are different. Persistence in the volatility of oil returns is affected by news arrival; furthermore, negative and positive news have different explanatory power on volatility clustering.

We incorporate these findings into a reduced form model to price oil futures that recognizes the asymmetric impact of negative and positive news. Empirical results show that the effects of negative and positive news are described by different processes. We find that a significant proportion of volatility can be explained by news arrival and that the impact of negative news is larger than that of positive news.

Bio:

Stuart M. Turnbull is Professor Emeritus, the Bauer College of Business at the University of Houston. He was a Senior Vice President, Fixed Income Research, Lehman Brothers, New York. Prior to joining Lehman Brothers, he was Vice President, Risk Management Division, Canadian Imperial Bank of Commerce, Toronto, Ontario.

Stuart has authored over sixty academic papers in the areas of financial economics, law and economics, and the general area of derivatives. He is currently an associate editor Journal of Credit Risk, International Journal of Theoretical and Applied Finance and the Journal of Derivatives. He was an associate editor of the Journal of Finance, and Mathematical Finance, He has published two books on derivatives.

He holds a Ph.D. in Financial Economics from the University of British Columbia, a M.Sc. in Statistics and Operational Research and a B.Sc. in Physics from the Imperial College of Science and Technology (London, U. K.).