ICSES Transactions on Neural and Fuzzy Computing

Vol. 3, No. 2, Dec. 2020

Does OPEC have the Pricing Power? The Perspective of Production Quota Announcement | Original Paper

a Sichuan university, Chengdu, China

Highlights and Novelties


1. This paper adopts Event Study Methodology (ESM) to analyze the impact of OPEC"s production quota announcements on the crude oil prices.

2. This paper improves the ESM through considering the data exist cross-sectional correlation and event-induced variances.

3. This paper uses a non-parametric GRANK-T test to deal with the cross-sectional correlations and event-induced variances.

4. This paper finds that OPEC"s production quota policy has pricing power.


Manuscript Abstract
Great changes have taken place in the world crude oil market in the past years. The crude oil price has always been a hot topic for both scholars and traders. However, OPEC"s production quota announcement is an essential factor affected the crude oil price. Hence, from the two dimensions (time evolution and announcement types), this paper adopts Event Study Methodology (ESM) to analyze the impact of OPEC"s production quota announcements on the crude oil prices. The data come from OPEC"s production announcement and the spot price data of 11 kinds of crude oil markets in the world from December 28, 2002 to December 5, 2017. This paper not only supplements and improves the ESM through considering the data exist cross-sectional correlation and event-induced variances, but also uses non-parametric GRANK-T test (Generalized Rank-t Test) to deal the cross-sectional correlations and event-induced variances. Then, the results show that: The OPEC"s production quota policy has pricing power as time goes by; The cut quota announcement promotes the crude oil prices to increase and its impact on cumulative abnormal returns is more significant in the pre-announcement period than the announcement day and the post-announcement window; The increase quota announcements can statistically significantly reduce the oil prices on the pre-announcement period and the post-announcement window. The maintain quota announcements lead the crude oil prices to increase in most cases.

Keywords
 OPEC   Pricing Power   Oil price   Quota Announcement   GRANK-T Test   Event Study Methodology 

Copyright
© Copyright was transferred to International Computer Science and Engineering Society (ICSES) by all the Authors.

Cite this manuscript as
Lijun Jia, "Does OPEC have the Pricing Power? The Perspective of Production Quota Announcement," ICSES Transactions on Neural and Fuzzy Computing (ITNFC), vol. 3, no. 2, pp. 7-16, Dec. 2020.

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