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Nonlinear Dynamics in Energy Futures

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  • Mariano Matilla-Garcia

Abstract

This paper studies the possible nonlinear and chaotic nature of three energy futures: natural gas, unleaded gasoline and light crude oil. Nonlinearity is analyzed using the generalized BDS statistic, along with Kaplan’s test. The results show that nonlinearity cannot be rejected. The null hypothesis of chaos is then investigated via the stability of the largest Lyapunov exponent. Evidence of chaos is found in futures returns. Global modelling techniques, like genetic algorithms, have been used in order to estimate potential motion equations. In addition, short term forecasts in futures price movements have been conducted with these estimated equations. The results show that although forecast errors are statistically smaller than those computed with other stochastic approaches, further research on these topics needs to be done.

Suggested Citation

  • Mariano Matilla-Garcia, 2007. "Nonlinear Dynamics in Energy Futures," The Energy Journal, , vol. 28(3), pages 7-30, July.
    • Handle: RePEc:sae:enejou:v:28:y:2007:i:3:p:7-30
    DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-2
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    References listed on IDEAS

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    1. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-337, July.
    2. repec:aen:journl:1998v19-02-a10 is not listed on IDEAS
    3. Melvin J. Hinich, 1982. "Testing For Gaussianity And Linearity Of A Stationary Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 3(3), pages 169-176, May.
    4. Shintani, Mototsugu & Linton, Oliver, 2004. "Nonparametric neural network estimation of Lyapunov exponents and a direct test for chaos," Journal of Econometrics, Elsevier, vol. 120(1), pages 1-33, May.
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    Cited by:

    1. Loretta Mastroeni & Pierluigi Vellucci, 2016. "“Butterfly Effect" vs Chaos in Energy Futures Markets," Departmental Working Papers of Economics - University 'Roma Tre' 0209, Department of Economics - University Roma Tre.
    2. 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.

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