Sources of the Volatility Puzzle in the Crude Oil Market

@inproceedings{Baumeister2009SourcesOT,
  title={Sources of the Volatility Puzzle in the Crude Oil Market},
  author={Christiane Baumeister and Gert Peersman},
  year={2009}
}
A remarkable but unnoticed feature of the crude oil market is that the dramatic rise in oil price volatility over time has been accompanied by a substantial fall in oil production volatility. We investigate the reasons for this opposite evolution of both oil market variables. Our main finding is that the observed volatility puzzle can be rationalized by the fact that the price elasticities of both oil supply and oil demand have decreased considerably over time. This implies that small… CONTINUE READING

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