 Smooth transition regime shifts and oil price dynamicsEnergy Economics, 2013, vol. 38, issue C, 160-167 Abstract: The interaction between rational hedgers and informed oil traders is parameterized and tested empirically with the help of a complex non linear smooth transition regime shift CCC-GARCH procedure. In spite of their gyrations, futures price changes are usually self-correcting. Well informed producers and consumers will ensure that crude oil prices – and thus the prices of the corresponding futures contracts – fluctuate within a long run equilibrium range determined by market fundamentals. During a steep price upswing, however, shifts in positions in the futures markets by well informed optimizing agents that usually dampen price changes, result in destabilizing positive feedback trading. Futures price changes that can be classified as speculative are due to destabilizing hedgers' reactions to movements in the variability of the return of their covered cash position. The paper provides in this way an innovative interpretation of the 2008 oil price bubble. Keywords: Oil price bubble; Dynamic hedging; Logistic smooth transition; Multivariate GARCH (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:38:y:2013:i:c:p:160-167 DOI: 10.1016/j.eneco.2013.03.006 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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