A new approach for crude oil price analysis based on Empirical Mode Decomposition
The importance of understanding the underlying characteristics of international crude oil price movements attracts much attention from academic researchers and business practitioners. Due to the intrinsic complexity of the oil market, however, most of them fail to produce consistently good results. Empirical Mode Decomposition (EMD), recently proposed by Huang et al., appears to be a novel data analysis method for nonlinear and non-stationary time series. By decomposing a time series into a small number of independent and concretely implicational intrinsic modes based on scale separation, EMD explains the generation of time series data from a novel perspective. Ensemble EMD (EEMD) is a substantial improvement of EMD which can better separate the scales naturally by adding white noise series to the original time series and then treating the ensemble averages as the true intrinsic modes. In this paper, we extend EEMD to crude oil price analysis. First, three crude oil price series with different time ranges and frequencies are decomposed into several independent intrinsic modes, from high to low frequency. Second, the intrinsic modes are composed into a fluctuating process, a slowly varying part and a trend based on fine-to-coarse reconstruction. The economic meanings of the three components are identified as short term fluctuations caused by normal supply-demand disequilibrium or some other market activities, the effect of a shock of a significant event, and a long term trend. Finally, the EEMD is shown to be a vital technique for crude oil price analysis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007.
"Modelling the world oil market: Assessment of a quarterly econometric model,"
Elsevier, vol. 35(1), pages 178-191, January.
- DEES Stéphane & KARADELOGLOU Pavlos & KAUFMANN Robert & SANCHEZ Marcelo, "undated". "Modelling the World Oil Market: Assessment of a Quarterly Econometric Model," EcoMod2003 330700040, EcoMod.
- Abramson, Bruce & Finizza, Anthony, 1995. "Probabilistic forecasts from probabilistic models: A case study in the oil market," International Journal of Forecasting, Elsevier, vol. 11(1), pages 63-72, March.
- Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-577, November.
- Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc.
- Sadorsky, Perry, 2002. "Time-varying risk premiums in petroleum futures prices," Energy Economics, Elsevier, vol. 24(6), pages 539-556, November.
- Abosedra, Salah & Baghestani, Hamid, 2004. "On the predictive accuracy of crude oil futures prices," Energy Policy, Elsevier, vol. 32(12), pages 1389-1393, August.
- Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
- Pindyck, Robert S., 1998. "The long-run evolution of energy prices," Working papers WP 4044-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Yang, C. W. & Hwang, M. J. & Huang, B. N., 2002. "An analysis of factors affecting price volatility of the US oil market," Energy Economics, Elsevier, vol. 24(2), pages 107-119, March.
- Bacon, Robert W, 1991. "Modelling the Price of Oil," Oxford Review of Economic Policy, Oxford University Press, vol. 7(2), pages 17-34, Summer.
- Abramson, Bruce & Finizza, Anthony, 1991. "Using belief networks to forecast oil prices," International Journal of Forecasting, Elsevier, vol. 7(3), pages 299-315, November.
- Kausik Chaudhuri, 2001. "Long-run prices of primary commodities and oil prices," Applied Economics, Taylor & Francis Journals, vol. 33(4), pages 531-538.
- Hillard G. Huntington, 1994. "Oil Price Forecasting in the 1980s: What Went Wrong?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-22.
- Morana, Claudio, 2001. "A semiparametric approach to short-term oil price forecasting," Energy Economics, Elsevier, vol. 23(3), pages 325-338, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:905-918. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.