On the difficulty of interpreting market behaviour in an uncertain world: the case of oil futures pricing between 2003 and 2016

Giulio Cifarelli () and Paolo Paesani

MPRA Paper from University Library of Munich, Germany

Abstract: Our results show that over the two cycles that characterize the 2003-2016 period a significant change in the working of oil markets occurs. Our pricing investigation, based on a three-agent model (hedgers, fundamentalist speculators and chartists), find that from 2009 onwards traditional analysis of supply and demand forecasts, loses its explanatory power and hence its credibility. The sharp and unexpected fluctuations in oil prices, compounded by unpredictable political factors and technological break-troughs (e.g. tight sands/shale oil) strongly raises uncertainty and reduces the effectiveness of customary forecasting techniques.

Keywords: Oil pricing; Speculation; Dynamic hedging; Logistic smooth transition; Multivariate GARCH (search for similar items in EconPapers)
JEL-codes: F2 F30 F37 G1 G13 G14 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-ene
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Working Paper: On the difficulty of interpreting market behaviour in an uncertain world: the case of oil futures pricing between 2003 and 2016 (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:84009

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