Heterogeneous Beliefs, Regret, and Uncertainty: The Role of Speculation in Energy Price Dynamics

Marc Joëts

No 2013.32, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper proposes to investigate the impact of financialization on energy markets (oil, gas, coal and electricity European forward prices) during both normal times and extreme fluctuation periods through an original behavioral and emotional approach. To this aim, we propose a new theoretical and empirical framework based on a heterogeneous agents model in which fundamentalists and chartists co-exist and are subject to regret and uncertainty. We find significant evidence that energy markets are composed by heterogeneous traders which behave differently depending on the intensity of the price fluctuations and uncertainty context. In particular, energy prices are mainly governed by fundamental and chartist neutral agents during normal times whereas they face to irrational chartist averse investors during extreme fluctuations periods. In this context, the recent energy prices surge can be viewed as the consequence of irrational exhuberance. Our new theoretical model outperforms the random walk in out-of-sample predictive ability.

Keywords: Energy Forward Prices; Financialization; Heterogeneous Agents; Uncertainty Aversion; Regret (search for similar items in EconPapers)
JEL-codes: D81 G02 G15 Q43 (search for similar items in EconPapers)
Date: 2013-04
New Economics Papers: this item is included in nep-cwa, nep-ene, nep-for, nep-reg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://feem-media.s3.eu-central-1.amazonaws.com/w ... oads/NDL2013-032.pdf (application/pdf)

Related works:
Journal Article: Heterogeneous beliefs, regret, and uncertainty: The role of speculation in energy price dynamics (2015)
Working Paper: Heterogeneous beliefs, regret, and uncertainty: The role of speculation in energy price dynamics (2015)
Working Paper: Heterogeneous Beliefs, Regret, and Uncertainty: The Role of Speculation in Energy Price Dynamics (2013)
Working Paper: Heterogeneous beliefs, regret, and uncertainty: The role of speculation in energy price dynamics (2013)
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:fem:femwpa:2013.32

Access Statistics for this paper

More papers in Working Papers from Fondazione Eni Enrico Mattei Contact information at EDIRC.
Bibliographic data for series maintained by Alberto Prina Cerai ( this e-mail address is bad, please contact ).