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A metric and topological analysis of determinism in the crude oil spot market

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  • Barkoulas, John T.
  • Chakraborty, Atreya
  • Ouandlous, Arav

Abstract

We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices.

Suggested Citation

  • Barkoulas, John T. & Chakraborty, Atreya & Ouandlous, Arav, 2012. "A metric and topological analysis of determinism in the crude oil spot market," Energy Economics, Elsevier, vol. 34(2), pages 584-591.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:584-591
    DOI: 10.1016/j.eneco.2011.10.004
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    3. Gu, Rongbao & Zhang, Bing, 2016. "Is efficiency of crude oil market affected by multifractality? Evidence from the WTI crude oil market," Energy Economics, Elsevier, vol. 53(C), pages 151-158.
    4. Facchini, Angelo & Rubino, Alessandro & Caldarelli, Guido & Di Liddo, Giuseppe, 2019. "Changes to Gate Closure and its impact on wholesale electricity prices: The case of the UK," Energy Policy, Elsevier, vol. 125(C), pages 110-121.
    5. Vogl, Markus, 2022. "Controversy in financial chaos research and nonlinear dynamics: A short literature review," Chaos, Solitons & Fractals, Elsevier, vol. 162(C).
    6. Balcilar, Mehmet & Hammoudeh, Shawkat & Asaba, Nwin-Anefo Fru, 2015. "A regime-dependent assessment of the information transmission dynamics between oil prices, precious metal prices and exchange rates," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 72-89.
    7. Ata Ozkaya & Omer Altun, 2024. "Domestic and Global Causes for Exchange Rate Volatility: Evidence From Turkey," SAGE Open, , vol. 14(2), pages 21582440241, April.
    8. 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.
    9. Vogl, Markus & Kojić, Milena & Sharma, Abhishek & Stanisic, Nikola, 2025. "Decoding financial markets: Empirical DGPs as the key to model selection and forecasting excellence – A proof of concept," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 666(C).
    10. Mastroeni, Loretta & Vellucci, Pierluigi & Naldi, Maurizio, 2019. "A reappraisal of the chaotic paradigm for energy commodity prices," Energy Economics, Elsevier, vol. 82(C), pages 167-178.
    11. Loretta Mastroeni & Pierluigi Vellucci, 2016. ""Butterfly Effect" vs Chaos in Energy Futures Markets," Papers 1610.05697, arXiv.org.
    12. Esra ALP & Ünal SEVEN, 2019. "Türkiye Konut Piyasasında Etkinlik Analizi," Istanbul Business Research, Istanbul University Business School, vol. 48(1), pages 84-112, May.
    13. Al-Khazali, Osamah M. & Mirzaei, Ali, 2017. "The impact of oil price movements on bank non-performing loans: Global evidence from oil-exporting countries," Emerging Markets Review, Elsevier, vol. 31(C), pages 193-208.
    14. Loretta Mastroeni & Pierluigi Vellucci, 2016. ""Chaos" in energy and commodity markets: a controversial matter," Papers 1611.07432, arXiv.org, revised Mar 2017.

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