Clustering in crude oil prices and the target pricing zone hypothesis
AbstractThis paper studies the target pricing zone (TPZ) hypothesis for crude oil by examining price clustering in the dollar digit. It is hypothesized that price clustering occurs within an established TPZ if OPEC is able to defend the upper and lower bounds through output changes. The results show that prices strongly cluster around the dollar digit value of 9 within the TPZ sub-periods, but not outside the sub-periods. Furthermore, the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas, consistent with OPEC's inability to defend the zone. Nine-centered clustering also results in lower contemporaneous and next-day volatility. These results support the target pricing zone hypothesis of crude oil.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): 4 ()
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Web page: http://www.elsevier.com/locate/eneco
Target pricing zone; Clustering; Crude oil; OPEC;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
- Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
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