Exploring the WTI crude oil price bubble process using the Markov regime switching model

Yue-Jun Zhang () and Jing Wang

Physica A: Statistical Mechanics and its Applications, 2015, vol. 421, issue C, 377-387

Abstract: The sharp volatility of West Texas Intermediate (WTI) crude oil price in the past decade triggers us to investigate the price bubbles and their evolving process. Empirical results indicate that the fundamental price of WTI crude oil appears relatively more stable than that of the market-trading price, which verifies the existence of oil price bubbles during the sample period. Besides, by allowing the WTI crude oil price bubble process to switch between two states (regimes) according to a first-order Markov chain, we are able to statistically discriminate upheaval from stable states in the crude oil price bubble process; and in most of time, the stable state dominates the WTI crude oil price bubbles while the upheaval state usually proves short-lived and accompanies unexpected market events.

Keywords: WTI crude oil price; Price bubbles; Markov regime switching model (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:421:y:2015:i:c:p:377-387

DOI: 10.1016/j.physa.2014.11.051

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