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Chaos in Natural Gas Futures?

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  • Victor Chwee

Abstract

Technical analysis using charting techniques to forecast future price trends can be difficult due to the volatile and unpredictable nature of futures market. Alternatively, the emergence of chaos theory seeks to find order in random looking futures price behavior. Hence, this paper tests for the presence of nonlinearity and chaos using the NYMEX 1 -month, 2-month, 3-month, and 6-month daily natural gas settlement prices, from April 1990 to September 1996. In doing so, we use the BDS statistic of Brock, Dechert, and Scheinkman (1987) for nonlinearity testing and then proceed to compute the Lyapunov spectra to determine to what degree futures data resemble a chaotic system. Although the results indicate the presence of nonlinearity, they fail to provide significant evidence of deterministic chaos.

Suggested Citation

  • Victor Chwee, 1998. "Chaos in Natural Gas Futures?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 149-164.
  • Handle: RePEc:aen:journl:1998v19-02-a10
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    Cited by:

    1. 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.
    2. Evzen Kocenda, 2001. "An Alternative To The Bds Test: Integration Across The Correlation Integral," Econometric Reviews, Taylor & Francis Journals, vol. 20(3), pages 337-351.
    3. Loretta Mastroeni & Pierluigi Vellucci, 2017. "“Chaos” In Energy And Commodity Markets: A Controversial Matter," Departmental Working Papers of Economics - University 'Roma Tre' 0218, Department of Economics - University Roma Tre.
    4. McKenzie, Michael D., 2001. "Chaotic behavior in national stock market indices: New evidence from the close returns test," Global Finance Journal, Elsevier, vol. 12(1), pages 35-53.
    5. Loretta Mastroeni & Pierluigi Vellucci, 2016. ""Butterfly Effect" vs Chaos in Energy Futures Markets," Papers 1610.05697, arXiv.org.
    6. Chevallier, Julien, 2011. "Nonparametric modeling of carbon prices," Energy Economics, Elsevier, vol. 33(6), pages 1267-1282.
    7. Adrangi, Bahram & Chatrath, Arjun & Dhanda, Kanwalroop Kathy & Raffiee, Kambiz, 2001. "Chaos in oil prices? Evidence from futures markets," Energy Economics, Elsevier, vol. 23(4), pages 405-425, July.

    More about this item

    JEL classification:

    • F0 - International Economics - - General

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