Changes in the relationship between the financial and real sector and the present economic financial crisis: study of energy sector and market

Franco Ruzzenenti
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Franco Ruzzenenti: University of Siena

Working papers from Financialisation, Economy, Society & Sustainable Development (FESSUD) Project

Abstract: The goal of D 3.08 to which this paper contributes, is to examine whether financialisation has tended to increase price instability in international energy markets, generating ‘price bubbles’, and whether these markets have been significant transmitters of the effects of the financial crisis. The paper starts by briefly outlining the evolution of energy markets’ regulation (oil, natural gas, coal and electricity) in Europe and in OECD countries, from the late 1990 to now, with the aim of establishing whether liberalization has led to 1) price reductions, and 2) increased price (?) volatility. Empirical evidence suggest that in all energy markets, since the 2000s, prices rose dramatically and volatility increased slightly However, the most remarkable result is that in the 21st century, prices of energy commodities began to be locked to the price of oil, showing a level of correlation not seen in previous decades. A possible explanation for the synchronization of energy prices with oil price lies in the “commodity bubble” in futures markets that occurred in the second half of the 2000s. Nevertheless, according to most of the existing literature, oil markets in the long run still seem to be dominated by spot markets rather than future markets, indicating that fundamentals are pivotal in determining the price of oil. In order to test this, we performed an analysis of the dynamical Hurst exponent of two crude oil (WTI and Brent) prices, spot and futures, from the 1980s to now, on a daily basis, aimed at assessing the long memory (autocorrelation) of returns.

Keywords: Finance; Energy Markets; Financialisation of Energy Markets, Commodity Bubble, Oil Price, Hurst Exponent, Multifractality (search for similar items in EconPapers)
JEL-codes: C22 G10 Q43 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-04-01
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (7)

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