A Variance Ratio Test of Random Walk in Energy Spot Markets
AbstractThis study tests the random walk hypothesis in the spot prices of the petroleum products markets. Under the variance ratio test, a less restrictive random walk process namely the martingale process is examined over the period 1998-2008. The variance ratio methodology is capable of providing information regarding the linearity of multi-period variances, serial correlation as well as possible conditional heteroscedastic effect in the selected spot markets. Due to the long spanning daily data, CUSUM and Andrews tests of structural change are conducted to avoid any possible misleading statistical inferences caused by the unstable parameter in the spot markets. Our empirical findings can be summarized as follows: (1) All the energy markets reject the independent and identically distributed random walk; (2) The WTI crude oil spot prices evidence the presence of autocorrelation and conditional heteroscedastic increments; (3) The Brent crude oil and New York Harbour conventional gasoline spot prices provide strong evidence of conditional heteroscedastic increments martingale process. As a conclusion, although the energy resources returns are martingales, the heteroscedastic increments can still be used to measure the market risk and to earn a risk-adjusted abnormal return in the energy spot markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The Indian Econometric Society in its journal Journal of Quantitative Economics.
Volume (Year): 8 (2010)
Issue (Month): 1 (January)
Postal: Managing Editor, Journal of Quantitative Economics, Indira Gandhi Institute of Development Research (IGIDR), Gen. A.K. Vaidya Marg, Goregaon (E), Mumbai 400 065 , INDIA
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
- Kaufmann, Robert K. & Laskowski, Cheryl, 2005. "Causes for an asymmetric relation between the price of crude oil and refined petroleum products," Energy Policy, Elsevier, vol. 33(12), pages 1587-1596, August.
- Askari, Hossein & Krichene, Noureddine, 2008. "Oil price dynamics (2002-2006)," Energy Economics, Elsevier, vol. 30(5), pages 2134-2153, September.
- Junsoo Lee & John A. List & Mark Strazicich, 2005.
"Nonrenewable Resource Prices: Deterministic or Stochastic Trends?,"
NBER Working Papers
11487, National Bureau of Economic Research, Inc.
- Lee, Junsoo & List, John A. & Strazicich, Mark C., 2006. "Non-renewable resource prices: Deterministic or stochastic trends?," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 354-370, May.
- Junsoo Lee & John A. List & Mark C. Strazicich, 2005. "Nonrenewable Resource Prices: Deterministic or Stochastic Trends?," Working Papers 05-20, Department of Economics, Appalachian State University.
- Postali, Fernando A.S. & Picchetti, Paulo, 2006. "Geometric Brownian Motion and structural breaks in oil prices: A quantitative analysis," Energy Economics, Elsevier, vol. 28(4), pages 506-522, July.
- Maslyuk, Svetlana & Smyth, Russell, 2008.
"Unit root properties of crude oil spot and futures prices,"
Elsevier, vol. 36(7), pages 2591-2600, July.
- Svetlana Maslyuk & Russell Smyth, 2007. "Unit Root Properties of Crude Oil Spot and Futures Prices," Development Research Unit Working Paper Series 40-07, Monash University, Department of Economics.
- Narayan, Paresh Kumar & Smyth, Russell, 2007. "A panel cointegration analysis of the demand for oil in the Middle East," Energy Policy, Elsevier, vol. 35(12), pages 6258-6265, December.
- Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
- Cologni, Alessandro & Manera, Matteo, 2008.
"Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries,"
Elsevier, vol. 30(3), pages 856-888, May.
- Matteo Manera & Alessandro Cologni, 2005. "Oil Prices, Inflation and Interest Rates in a Structural Cointegrated VAR Model for the G-7 Countries," Working Papers 2005.101, Fondazione Eni Enrico Mattei.
- Serletis, Apostolos & Rangel-Ruiz, Ricardo, 2004. "Testing for common features in North American energy markets," Energy Economics, Elsevier, vol. 26(3), pages 401-414, May.
- J. Isaac Miller & Ronald Ratti, 2008.
"Crude Oil and Stock Markets: Stability, Instability, and Bubbles,"
0810, Department of Economics, University of Missouri, revised 20 Jan 2009.
- Miller, J. Isaac & Ratti, Ronald A., 2009. "Crude oil and stock markets: Stability, instability, and bubbles," Energy Economics, Elsevier, vol. 31(4), pages 559-568, July.
- Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2008. "Are oil shocks permanent or temporary? Panel data evidence from crude oil and NGL production in 60 countries," Energy Economics, Elsevier, vol. 30(3), pages 919-936, May.
- Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (D. M. Nachane) or ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.