Information content of the limit order book for crude oil futures price volatility

Xiao Tian, Huu Nhan Duong, Petko S. Kalev

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper investigates the information content of the limit order book on future volatility in the crude oil futures market. We propose a time-weighted limit order book slope that incorporates the duration of each bid and ask update. When volatility is expected to increase around weekly announcements on physical crude oil inventory, we observe that the limit order book slope decreases significantly. We also show that the time-weighted limit order book slope is informative about price volatility one day ahead. Overall, our findings illustrate the importance of the limit order book as a conduit for volatility information.

Original languageEnglish
Pages (from-to)584-597
Number of pages14
JournalEnergy Economics
Volume81
DOIs
Publication statusPublished - Jun 2019

Keywords

  • Crude oil futures
  • Energy market information releases
  • Futures price volatility
  • Time-weighted limit order book slope

Cite this

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title = "Information content of the limit order book for crude oil futures price volatility",
abstract = "This paper investigates the information content of the limit order book on future volatility in the crude oil futures market. We propose a time-weighted limit order book slope that incorporates the duration of each bid and ask update. When volatility is expected to increase around weekly announcements on physical crude oil inventory, we observe that the limit order book slope decreases significantly. We also show that the time-weighted limit order book slope is informative about price volatility one day ahead. Overall, our findings illustrate the importance of the limit order book as a conduit for volatility information.",
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author = "Xiao Tian and Duong, {Huu Nhan} and Kalev, {Petko S.}",
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publisher = "Elsevier",

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Information content of the limit order book for crude oil futures price volatility. / Tian, Xiao; Duong, Huu Nhan; Kalev, Petko S.

In: Energy Economics, Vol. 81, 06.2019, p. 584-597.

Research output: Contribution to journalArticleResearchpeer-review

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AB - This paper investigates the information content of the limit order book on future volatility in the crude oil futures market. We propose a time-weighted limit order book slope that incorporates the duration of each bid and ask update. When volatility is expected to increase around weekly announcements on physical crude oil inventory, we observe that the limit order book slope decreases significantly. We also show that the time-weighted limit order book slope is informative about price volatility one day ahead. Overall, our findings illustrate the importance of the limit order book as a conduit for volatility information.

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