Driven by fundamentals or exploded by emotions: Detecting bubbles in oil prices

Muhammad Umar, Chi-Wei Su, Syed Kumail Abbas Rizvi and Oana-Ramona Lobonţ

Energy, 2021, vol. 231, issue C

Abstract: Crude oil is the world's largest energy commodity, and its domestic and international supplies affect the short-term and long-term economic balances of many countries. It also has a strategic and political role in making important contributions related to the production of reserve assets. Given the increasing and often destabilizing role of the futures market on spot oil prices, this study tries to address the question of whether the oil market behaves efficiently and rationally, or do speculators lead it? Using monthly data from 2000M01–2020M12 for crude oil prices and a range of advanced econometric tools such as breakpoint unit root tests, probability-based bubble detection mechanism, right-tailed Supremum Augmented Dickey-Fuller (SADF), and Generalized SADF (GSADF) approaches based on Monte Carlo and bootstrap critical values, we detect multiple bubbles exhibited by the oil market in different periods. The exact identification of these bubbles is essential to analyze the underlying fundamentals that may have caused these bubbles. It can also help policymakers and regulators to assess the exposure oil prices have towards several economic and fundamental factors. Finally, detecting bubbles and exploring the factors causing them, may help improve the oil market's overall efficiency and thus improve investors' decision-making.

Keywords: BASDF; Bubble; Crude oil price; Geopolitical and speculative events; GSADF (search for similar items in EconPapers)
JEL-codes: C22 C58 G23 O33 Q43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S036054422101121X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:231:y:2021:i:c:s036054422101121x

DOI: 10.1016/j.energy.2021.120873

Access Statistics for this article

Energy is currently edited by Henrik Lund and Mark J. Kaiser

More articles in Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().