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Do crude oil price bubbles occur?

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  • Khan, Khalid
  • Su, Chi-Wei
  • Umar, Muhammad
  • Yue, Xiao-Guang

Abstract

The Generalized Supremum Augmented Dickey-Fuller (GSADF) test is employed to conclude whether crude oil price (OP) experiences multiple bubbles. The technique has distinctions to detect multiple bubbles along with its beginning and ending point. Oil is extremely significant due to its strategic position and several factors influence OP. The outcomes display the existence of bubbles which imply that OP deviates three times. This indicates the beginning and termination of bubbles coincide with a particular crisis. The expansion of the world economy, the mismatch between demand-supply of oil, dollar depreciation, excess supply by Organization of the Petroleum Exporting Countries, shale oil production of the U.S., and low demand by the emerging economies are the leading factors of OP bubbles. The main contributions are the investigation of the OP bubble, its determinants and the different technique of GSADF to detect OP bubbles. Moreover, the greater economic certainty and political stability ensure a smooth supply of OP can lessen unexpected fluctuation. The symmetric information can minimize market speculation, improve market efficiency, help investors make reasonable investment decisions, and minimize potential price risks.

Suggested Citation

  • Khan, Khalid & Su, Chi-Wei & Umar, Muhammad & Yue, Xiao-Guang, 2021. "Do crude oil price bubbles occur?," Resources Policy, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:jrpoli:v:71:y:2021:i:c:s0301420720309661
    DOI: 10.1016/j.resourpol.2020.101936
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    More about this item

    Keywords

    Crude oil price bubble; Generalized supremum ADF; Geopolitical events;
    All these keywords.

    JEL classification:

    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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