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Herding and Speculation in the Crude Oil Market

Celso Brunetti, Bahattin Buyuksahin, and Jeffrey H. Harris

Year: 2013
Volume: Volume 34
Number: Number 3
DOI: 10.5547/01956574.34.3.5
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Abstract:
We examine whether herding among speculators in U.S. crude oil futures markets affects market prices and volatility. Using detailed data on the positions of hedge funds and swap dealers from 2005-2009, we find little evidence that herding destabilizes the crude oil futures market. To the contrary, herding among speculative traders is negatively correlated with contemporaneous volatility and does not lead next-day volatility. Our impulse-response analysis shows that market regulators should monitor herding since a shock to herding among all groups may lead to price changes, and, in the case of hedge funds, may lead to increased volatility. Interestingly, however, increased swap dealer herding actually dampens crude oil price volatility.



OPEC "Fair Price" Pronouncements and the Market Price of Crude Oil

Celso Brunetti, Bahattin Buyuksahin, Michel A. Robe, and Kirsten R. Soneson

Year: 2013
Volume: Volume 34
Number: Number 4
DOI: 10.5547/01956574.34.4.5
View Abstract

Abstract:
OPEC producers, individually or collectively, often make statements regarding the "fair price" of crude oil. In some cases, the officials commenting are merely affirming the market price prevailing at the time. In many cases, however, we document that they explicitly disagree with contemporaneous oil futures prices. A natural question is whether these "fair price" pronouncements contain information not already reflected in the market price of crude oil. To find the answer, we collect "fair price" statements made from 2000 through 2010 by officials from OPEC or OPEC member countries. Visually, the "fair price" series looks like a sampling discretely drawn (with a lag) from the daily futures market price series. Formally, we use two primary methodologies to establish that "fair price" pronouncements have little influence on the market price of crude oil and provide little or no new news to oil futures market participants.





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