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Interpreting the movement of oil prices: Driven by fundamentals or bubbles?

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  • Zhang, Yue-Jun
  • Yao, Ting

Abstract

Based on the historical data of crude oil, diesel and gasoline markets during November 2001–December 2015, this paper employs the state-space model and log-periodic power law (LPPL) model to explore the dynamic bubbles of oil prices and predict their crash time. The results indicate that, first, oil price bubbles only exist during November 2001–July 2008, and crude oil and diesel prices are significantly driven by bubbles, whereas gasoline prices are mainly driven by fundamentals. Second, the state-space model captures the time-varying bubbles of crude oil and diesel prices. Finally, the LPPL model well predicts the crash time of bubbles.

Suggested Citation

  • Zhang, Yue-Jun & Yao, Ting, 2016. "Interpreting the movement of oil prices: Driven by fundamentals or bubbles?," Economic Modelling, Elsevier, vol. 55(C), pages 226-240.
  • Handle: RePEc:eee:ecmode:v:55:y:2016:i:c:p:226-240
    DOI: 10.1016/j.econmod.2016.02.016
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    More about this item

    Keywords

    Oil price; Bubble; State-space model; LPPL;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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