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Are Oil Prices Mean Reverting? Evidence from Unit Root Tests with Sharp and Smooth Breaks

Author

Listed:
  • Adedoyin Isola Lawal

    (Department of Accounting and Finance, Landmark University, Omu Aran, Nigeria)

  • Abiola A. Babajide

    (Department of Banking and Finance, Covenant University, Ota, Nigeria)

  • Tony Ikechukwu Nwanji

    (Department of Accounting and Finance, Landmark University, Omu Aran, Nigeria)

  • Damilola Eluyela

    (Department of Accounting and Finance, Landmark University, Omu Aran, Nigeria)

Abstract

This study examined the validity of efficiency market hypothesis for the oil market by employing a novel Fourier unit root test that accounts for sharp shifts and smooth breaks based on daily data. Our results established the existence of structural shifts and nonlinearity in the oil market indices suggesting that oil market is inefficient when structural breaks is calibrated into the model. Unlike results obtained from existing traditional unit root test, results from sharp shifts and smooth breaks unit root test suggests the rejection of unit root null for each of the oil indices. The study has some practical and policy implications based on our findings.

Suggested Citation

  • Adedoyin Isola Lawal & Abiola A. Babajide & Tony Ikechukwu Nwanji & Damilola Eluyela, 2018. "Are Oil Prices Mean Reverting? Evidence from Unit Root Tests with Sharp and Smooth Breaks," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 292-298.
    • Handle: RePEc:eco:journ2:2018-06-35
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Adedoyin Isola Lawal & Abiola John Asaleye & Henry Inegbedion & John Dean Ojeka & Stephen Kayode Adekunle & Enoch Olaniyan & T. David Eyiolorunshe & Olayinka Abosede Olabode, 2019. "Does Commercial Banking Activities Exerts on Agricultural Growth in Nigeria? Evidence from ARDL Framework," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, December.
    2. Chuke Nwude & Damilola Felix Eluyela & Elias Igwebuike Agbo & Francis O Iyoha, 2021. "The Influence of Oil Price Fluctuations on Stock Market of Developing Economies: A Focus on Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 100-109.
    3. Lawal, Adedoyin Isola & Ozturk, Ilhan & Olanipekun, Ifedolapo O. & Asaleye, Abiola John, 2020. "Examining the linkages between electricity consumption and economic growth in African economies," Energy, Elsevier, vol. 208(C).
    4. Adedoyin Isola LAWAL & Ezekiel OSENI & Abiola John ASALEYE & Bukola LAWAL-ADEDOYIN & Rachael OJEKA-JOHN, 2021. "Is the Stock Market Efficient? Evidence from Nonlinear Unit Root Tests for Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 11(5), pages 384-395, May.
    5. Joseph U. Madugba & E. Ben-Caleb & Adedoyin I. Lawal & Uche T. Agburuga, 2020. "Firm Size and Tax Saving Behaviour of Listed Companies in Nigeria," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 9, May.
    6. Iyabo Adeola Olanrele & Adedoyin I. Lawal & Ezekiel Oseni & Ahmed Oluwatobi Adekunle & Bukola, B. Lawal-Adedoyin & Crystal O. Elleke & Racheal Ojeka-John & Henry Nweke-Love, 2020. "Accessing the Impacts of Contemporary Development in Biofuel on Agriculture, Energy and Domestic Economy: Evidence from Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 469-478.

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    More about this item

    Keywords

    Oil prices; Market Efficiency; Fourier analysis; Unit root tests; Energy.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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