A metric and topological analysis of determinism in the crude oil spot market
AbstractWe test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/eneco
Nonlinear dynamics; Chaos; Correlation dimension; Lyapunov exponents; Recurrence plots;
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