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Jonathan A. Batten

is Professor of Finance in the Department of Banking and Finance at Monash University, Australia. Prior to this position he worked as a Professor in Finance at the Hong Kong University of Science & Technology and Seoul National University, Korea. He is the managing editor of Emerging Markets Review, Journal of International Financial Markets Institutions and Money, co-editor of Finance Research Letters, and on the editorial boards of a number of other journals including the Journal of Banking & Finance, Journal of Multinational Financial Management and International Review of Financial Analysis. He is the current President of the Eurasian Business and Economics Society (EBES). His current research interests include: Financial market development and risk management; spread modelling arbitrage and market integration; and the investigation of the non-linear dynamics of financial prices.

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Jonathan A. Batten, Harald Kinateder, Peter G. Szilagyi, and Niklas F. Wagner: Liquidity, Surprise Volume and Return Premia in the Oil Market

We investigate the applicability of the Mixture of Distribution Hypothesis (MDH) to the oil market. The results highlight an important association between liquidity, surprise volume and oil market returns. The study period, from 1990 to 2016, includes the effects of recent supply-side shocks arising from technological innovations, including horizontal drilling and hydraulic fracking, as well as the demand-side shocks associated with the Asian Financial and Global Financial Crisis. The econometric model addresses autoregressive properties in the return series, the impacts of surprise volume and conditional oil market return volatility as well as market liquidity in the conditional return equation. Surprise volume as a proxy of private information flow is shown to be unrelated to a set of standard liquidity proxies. Return heteroskedasticity in oil returns is found to be partly explainable by surprise trading volume, a finding that is consistent with the MDH. Since both oil market liquidity, as well as surprise volume shocks, are priced in the oil markets, lower levels of lagged market liquidity relate to above average conditional oil market returns. Surprise volume shocks are jointly associated with lower conditional oil market returns and higher contemporaneous conditional return variance. Lagged market liquidity appears to matter more than conditional volatility in predicting conditional oil price returns.

Last modified: 2017.10.30.