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“Butterfly Effect" vs Chaos in Energy Futures Markets

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  • Loretta Mastroeni
  • Pierluigi Vellucci

Abstract

In this paper we test for the sensitive dependence on initial conditions (the so called \butter y e ect") of energy futures time series (heating oil, natural gas), and thus the determinism of those series. Unlike previous studies, we test for the time series for sensitive dependence on initial conditions, introducing a coecient that describes the determinism rate of the series and that represents its reliability level (in percentage). The introduction of this reliability level is motivated by the fact that time series generated from stochastic systems also might show sensitive dependence on initial conditions. The reliability level obtained for the NYMEX energy futures considered here is always approximately 50% and this means that the stochastic component and the deterministic one turn up approximately in the same proportions. Such a tangible presence of a stochastic component does not warrant strong evidence of chaotic behaviour.

Suggested Citation

  • Loretta Mastroeni & Pierluigi Vellucci, 2016. "“Butterfly Effect" vs Chaos in Energy Futures Markets," Departmental Working Papers of Economics - University 'Roma Tre' 0209, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0209
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    References listed on IDEAS

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    More about this item

    Keywords

    nonlinear dynamics; chaos; butter y e ect; energy futures.;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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