Clustering in crude oil prices and the target pricing zone hypothesis
This paper studies the target pricing zone (TPZ) hypothesis for crude oil by examining price clustering in the dollar digit. It is hypothesized that price clustering occurs within an established TPZ if OPEC is able to defend the upper and lower bounds through output changes. The results show that prices strongly cluster around the dollar digit value of 9 within the TPZ sub-periods, but not outside the sub-periods. Furthermore, the degree of clustering declines when production capacity utilization is high and when production significantly exceeds quotas, consistent with OPEC's inability to defend the zone. Nine-centered clustering also results in lower contemporaneous and next-day volatility. These results support the target pricing zone hypothesis of crude oil.
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.:
- Kandel, Shmuel & Sarig, Oded & Wohl, Avi, 2001. "Do investors prefer round stock prices? Evidence from Israeli IPO auctions," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1543-1551, August.
- Oded Palmon & Barton A. Smith & Ben J. Sopranzetti, 2004. "Clustering in Real Estate Prices: Determinants and Consequences," Journal of Real Estate Research, American Real Estate Society, vol. 26(2), pages 115-136.
- Gault, John & Spierer, Charles & Bertholet, Jean-Luc & Karbassioun, Bahman, 1999. "How does OPEC allocate quotas?," Journal of Energy Finance & Development, Elsevier, vol. 4(2), pages 137-148.
- Carol Dahl & Mine Yucel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 117-138.
- Antonio Spilimbergo, 1995.
"Testing the Hypothesis of Collusive Behavior Among OPEC Members,"
Research Department Publications
4016, Inter-American Development Bank, Research Department.
- Spilimbergo, Antonio, 2001. "Testing the hypothesis of collusive behavior among OPEC members," Energy Economics, Elsevier, vol. 23(3), pages 339-353, May.
- Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 192-201, September.
- repec:oup:qjecon:v:106:y:1991:i:3:p:669-82 is not listed on IDEAS
- Loderer, Claudio, 1985. " A Test of the OPEC Cartel Hypothesis: 1974-1983," Journal of Finance, American Finance Association, vol. 40(3), pages 991-1006, July.
- Hammoudeh, Shawkat & Madan, Vibhas, 1995. "Expectations, target zones, and oil price dynamics," Journal of Policy Modeling, Elsevier, vol. 17(6), pages 597-613, December.
- Brian Lucey & Raj Aggarwal, 2005.
"Psychological Barriers in Gold Prices,"
The Institute for International Integration Studies Discussion Paper Series
- Petter Vegard Hansen & Lars Lindholt, 2004.
"The market power of OPEC 1973-2001,"
385, Statistics Norway, Research Department.
- A. Slaibi & D. Chapman & H. Daouk, 2010. "A geopolitical theory of oil price behaviour: an econometric evaluation," Applied Economics, Taylor & Francis Journals, vol. 42(22), pages 2783-2800.
- Duane Chapman & Neha Khanna, 2001.
"An Economic Analysis Of Aspects Of Petroleum And Military Security In The Persian Gulf,"
Contemporary Economic Policy,
Western Economic Association International, vol. 19(4), pages 371-381, October.
- Chapman, Duane & Khanna, Neha, 2000. "An Economic Analysis Of Aspects Of Petroleum And Military Security In The Persian Gulf," Working Papers 7229, Cornell University, Department of Applied Economics and Management.
- Mitchell, Jason & Izan, H.Y., 2006. "Clustering and psychological barriers in exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(4), pages 318-344, October.
- Gately, Dermot, 1984. "A Ten-Year Retrospective: OPEC and the World Oil Market," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1100-114, September.
- Ramcharran, Harri, 2002. "Oil production responses to price changes: an empirical application of the competitive model to OPEC and non-OPEC countries," Energy Economics, Elsevier, vol. 24(2), pages 97-106, March.
- Duane Chapman & Neha Khanna, 2006. "The Persian Gulf, Global Oil Resources, And International Security," Contemporary Economic Policy, Western Economic Association International, vol. 24(4), pages 507-519, October.
- John C.B. Cooper, 2003. "Price elasticity of demand for crude oil: estimates for 23 countries," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 1-8, 03.
- Adelman, M. A., 2002. "World oil production & prices 1947-2000," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 169-191.
- Riccardo Curcio & Charles Goodhart, 1991. "The Clustering of Bid/Ask Prices and the Spread in the Foreign Exchange Market," FMG Discussion Papers dp110, Financial Markets Group.
- Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
- Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
- D. Chapman & N. Khanna, 2000. "World oil: the growing case for international policy," Contemporary Economic Policy, Western Economic Association International, vol. 18(1), pages 1-13, 01.
- Tang, Linghui & Hammoudeh, Shawkat, 2002. "An empirical exploration of the world oil price under the target zone model," Energy Economics, Elsevier, vol. 24(6), pages 577-596, November.
- David Jay Green, 1988. "The World Oil Market: An Examination Using Small-Scale Models," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 61-77.
- James D. Hamilton, 2009.
"Understanding Crude Oil Prices,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
- James L. Smith, 2005.
"Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 1), pages 51-82.
- James L. Smith, 2003. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," Working Papers 0305, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Ahn, Hee-Joon & Cai, Jun & Cheung, Yan Leung, 2005. "Price clustering on the limit-order book: Evidence from the Stock Exchange of Hong Kong," Journal of Financial Markets, Elsevier, vol. 8(4), pages 421-451, November.
- Stevenson, Richard A & Bear, Robert M, 1970. "Commodity Futures: Trends or Random Walks?," Journal of Finance, American Finance Association, vol. 25(1), pages 65-81, March.
- Clifton T. Jones, 1990. "OPEC Behaviour Under Falling Prices: Implications For Cartel Stability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 117-130.
- Donaldson, R. Glen & Kim, Harold Y., 1993. "Price Barriers in the Dow Jones Industrial Average," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(03), pages 313-330, September.
- Charles Kahn & George Pennacchi & Ben Sopranzetti, 1999.
"Bank Deposit Rate Clustering: Theory and Empirical Evidence,"
Journal of Finance,
American Finance Association, vol. 54(6), pages 2185-2214, December.
- Charles M. Kahn & George Pennacchi & Ben Sopranzetti, 1996. "Bank deposit rate clustering: theory and empirical evidence," Working Paper 9604, Federal Reserve Bank of Cleveland.
- Franz Wirl and Azra Kujundzic, 2004. "The Impact of OPEC Conference Outcomes on World Oil Prices 1984-2001," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 45-62.
- Gottlieb, Gary & Kalay, Avner, 1985. " Implications of the Discreteness of Observed Stock Prices," Journal of Finance, American Finance Association, vol. 40(1), pages 135-53, March.
- Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
- Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-60, December.
- A.F Alhajji & David Huettner, 2000. "OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 31-60.
- Huang, Roger D. & Stoll, Hans R., 2001. "Tick Size, Bid-Ask Spreads, and Market Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 503-522, December.
- Geroski, Paul A & Ulph, Alistair M & Ulph, David T, 1987. "A Model of the Crude Oil Market in Which Market Conduct Varies," Economic Journal, Royal Economic Society, vol. 97(388a), pages 77-86, Supplemen.
- Alhajji, A. F. & Huettner, David, 2000. "OPEC and other commodity cartels: a comparison," Energy Policy, Elsevier, vol. 28(15), pages 1151-1164, December.
- Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
- Sopranzetti, Ben J. & Datar, Vinay, 2002. "Price clustering in foreign exchange spot markets," Journal of Financial Markets, Elsevier, vol. 5(4), pages 411-417, October.
- Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:4:p:1115-1123. 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: (Zhang, Lei)
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.