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Testing for Rational Bubbles in the Commodity Market

Author

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  • Tadahiro Nakajima
  • Shigeyuki Hamori

Abstract

In order to hedge price-fluctuation risks, to derive fair prices, and to operate fundsas a new asset class, both expectations and concerns about commodity markets have been increasing.This paper proposes a sufficient condition for the absence of rational bubbles in the commodity market- that the first differences of real prices are stationary. This condition is proposed on the assumption that products of the convenience yield and the real prices are stationary. By applying this approach to the US crude oil and natural gas marketsfrom 3 January 2007, to 30 December 2011, the absence of rational bubbles in both markets can be verified.One should interpretthese large price fluctuations as caused by much larger income elasticity than price elasticity.These prices reflect thefundamental values of these commodities.

Suggested Citation

  • Tadahiro Nakajima & Shigeyuki Hamori, 2012. "Testing for Rational Bubbles in the Commodity Market," Accounting and Finance Research, Sciedu Press, vol. 1(2), pages 101-101, November.
    • Handle: RePEc:jfr:afr111:v:1:y:2012:i:2:p:101
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    References listed on IDEAS

    as
    1. Yuichi Fukuta, 2002. "A test for rational bubbles in stock prices," Empirical Economics, Springer, vol. 27(4), pages 587-600.
    2. Diba, Behzad T & Grossman, Herschel I, 1988. "Explosive Rational Bubbles in Stock Prices?," American Economic Review, American Economic Association, vol. 78(3), pages 520-530, June.
    3. Mark Bertus & Bryan Stanhouse, 2001. "Rational speculative bubbles in the gold futures market: An application of dynamic factor analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(1), pages 79-108, January.
    4. Fukuta, Yuichi, 1996. "Rational bubbles and non-risk neutral investors in Japan," Japan and the World Economy, Elsevier, vol. 8(4), pages 459-473, December.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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