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Abstract
This dissertation investigates the behavior of crude oil futures return and volatility and their response to short-term as well as long-term events. The primary objectives of this research are to estimate the direction, magnitude, and duration of an events impact on crude oil futures and to relate the results to the nature of the events.The first essay applies the Distributional Event Response Model (DERM), which is designed for examining relatively slowly-evolving information events, to twenty-five years of daily crude oil futures return and volatility in order to analyze the pattern of market responses to selected events. The results show that all ten events considered have statistically significant effects on crude oil futures return and volatility. The U.S. invasion of Iraq in 1991 and 9/11 terrorists attacks are found to have the largest daily impacts on returns and volatility, respectively. In addition, the location and duration of event windows vary across different events. Generally, the largest return and volatility responses to an event are observed after several days or even months following the event, suggesting that simply using an event-day dummy variable would hinder discovering actual market responses to slowly-evolving events.The second essay, published in Energy Economics, examines the behavior of intraday crude oil futures return and volatility and how they respond to weekly inventory announcements by the American Petroleum Institute (API) and Energy Information Administration (EIA). The informational content of API reports is measured relative to market analysts expectations collected by Reuters, whereas that of EIA reports is measured relative to API reports. Results suggest that unexpected inventory changes in both API and EIA reports exert an immediate inverse impact on returns and a positive impact on volatility; but the duration and magnitude of EIA inventory shocks are longer and larger, with the largest impact observed when Reuters and API both err on the same side. While there are no instant asymmetric return responses to positive and negative API shocks, the return and volatility responses to cross-commodity inventory shocks in EIA reports exhibit asymmetry.