Speculative bubbles in recent oil price dynamics: Evidence from a Bayesian Markov-switching state-space approach
AbstractMotivated by repeated spikes and crashes during previous decades we investigate whether the heavily financialized market for crude oil has been driven by speculative bubbles. In our theoretical modeling we draw on the convenience yield approach in order to approximate the fundamental value of the oil price. We separate the oil price fundamental from the bubble component by expressing a standard present-value oil price model in state-space form. We then introduce two Markov-regimes into the state-space representation in order to distinguish between two distinct phases in the bubble process, namely one in which the oil price bubble is a stable process and one in which the bubble explodes. We estimate the entire Markov-switching state-space specification using an econometrically robust Bayesian Markov-Chain-Monte-Carlo (MCMC) methodology. Based on inferential techniques designed for statistically separating both Markov-regimes in the bubble process from each other, we find robust evidence for the existence of speculative bubbles in recent oil price dynamics.
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Bibliographic InfoPaper provided by Center for Quantitative Economics (CQE), University of Muenster in its series CQE Working Papers with number 2312.
Length: 34 pages
Date of creation: Jun 2012
Date of revision:
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Speculative bubbles; oil price; Markov-switching model; state-space model; Bayesian econometrics;
Other versions of this item:
- Lammerding, Marc & Stephan, Patrick & Trede, Mark & Wilfling, Bernd, 2013. "Speculative bubbles in recent oil price dynamics: Evidence from a Bayesian Markov-switching state-space approach," Energy Economics, Elsevier, vol. 36(C), pages 491-502.
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-CIS-2012-07-01 (Confederation of Independent States)
- NEP-ENE-2012-07-01 (Energy Economics)
- NEP-ORE-2012-07-01 (Operations Research)
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- Joscha Beckmann & Robert Czudaj, 2013. "Is there a Homogeneous Causality Pattern between Oil Prices and Currencies of Oil Importers and Exporters?," Ruhr Economic Papers 0431, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
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