FBA SEMINAR SERIES
Closing Pressure, Predatory Trading, and the Negative Price of Oil
Prof. Wenjin KANG, Professor in Finance, Faculty of Business Administration, University of Macau
Date: 9 November 2022 (Wednesday)
Time: 3:00pm – 4:00pm
Venue: Room G010, Faculty of Business Administration (E22)
Host: Prof. Endong YANG, Assistant Professor in Finance
This paper examines the contribution of closing pressure and predatory trading to the formation of the negative settlement price of NYMEX West Texas Intermediate (WTI) Crude Oil futures on April 20, 2020. We construct a theoretical model and show that the eagerness to close long positions, namely, the closing pressure, pushes down the WTI price. Empirical tests confirm this negative price effect of closing pressure, but it is estimated to bring the price down to only approximately 3 dollars. An extended model with the Trading at Settlement (TAS) market further suggests that predatory trading greatly drags down the daily settlement price, and the price is simulated to be lower than –30 dollars. Overall, closing pressure and predatory trading together contribute to the negative price of oil.
Prof. Wenjin KANG is Professor in Finance at Faculty of Business Administration, in University of Macau. He received his Ph.D. in Management from UCLA Anderson School of Management. His research expertise is mainly in asset pricing. He has published multiple papers about the pricing and determinants of liquidity, commodity markets, and the performance of factor strategies in prestigious finance top journals such as Journal of Finance and Journal of Financial Economics. His research work has received more than 1500 Google scholar citations.
All are welcome!