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An Application Of Models Of Speculative Behaviour To Oil Prices

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  • Shuping Shi
  • Vipin Arora

Abstract

We estimate three different models of speculative behaviour using oil price data. There are two major results: (i) The three-regime model of Brooks and Katsaris (2005) and a three-regime variant of van Norden and Schaller (2002) fit the oil price data reasonably well; and (ii) Both models show that the probabilities of being in a bubble collapsing state and a bubble expansion state spike in late-2008/early-2009. This provides some support for the claim by Phillips and Yu (2010) and Gilbert (2010) that a bubble in oil prices existed for short period in 2008.

Suggested Citation

  • Shuping Shi & Vipin Arora, 2011. "An Application Of Models Of Speculative Behaviour To Oil Prices," CAMA Working Papers 2011-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2011-11
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-02/11_shiarora_2011.pdf
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    References listed on IDEAS

    as
    1. Simon van Norden & Huntley Schaller, 2002. "Fads or bubbles?," Empirical Economics, Springer, pages 335-362.
    2. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    3. Chris Brooks & Apostolos Katsaris, 2005. "A Three-Regime Model of Speculative Behaviour: Modelling the Evolution of the S&P 500 Composite Index," Economic Journal, Royal Economic Society, vol. 115(505), pages 767-797, July.
    4. Peter C. B. Phillips & Jun Yu, 2011. "Dating the timeline of financial bubbles during the subprime crisis," Quantitative Economics, Econometric Society, vol. 2(3), pages 455-491, November.
    5. Pindyck, Robert S, 1993. "The Present Value Model of Rational Commodity Pricing," Economic Journal, Royal Economic Society, vol. 103(418), pages 511-530, May.
    6. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    7. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    8. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. repec:eee:ecmode:v:66:y:2017:i:c:p:81-100 is not listed on IDEAS
    2. Vipin Arora & Shuping Shi, 2013. "A Heterogenous Agent Foundation for Tests of Asset Price Bubbles," CAMA Working Papers 2013-35, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Fantazzini, Dean, 2016. "The oil price crash in 2014/15: Was there a (negative) financial bubble?," Energy Policy, Elsevier, vol. 96(C), pages 383-396.
    4. Tsvetanov, Daniel & Coakley, Jerry & Kellard, Neil, 2016. "Bubbling over! The behaviour of oil futures along the yield curve," Journal of Empirical Finance, Elsevier, vol. 38(PB), pages 516-533.
    5. Mehmet Balcilar & Rangan Gupta & Nico Frederick Katzke, 2015. "Identifying Periods of US Housing Market Explosivity," Working Papers 15-03, Eastern Mediterranean University, Department of Economics.
    6. Mehmet Balcilar & Rangan Gupta & Charl Jooste & Omid Ranjbar, 2015. "Characterising the South African Business Cycle: Is GDP Difference-Stationary or Trend-Stationary in a Markov-Switching Setup?," Working Papers 201529, University of Pretoria, Department of Economics.
    7. Kuhanathan Ano Sujithan & Sanvi Avouyi-Dovi & Lyes Koliai, 2014. "On the determinants of food price volatility," Post-Print hal-01511900, HAL.
    8. Itamar Caspi & Nico Katzke & Rangan Gupta, 2014. "Date stamping historical oil price bubbles: 1876 - 2014," Working Papers 20/2014, Stellenbosch University, Department of Economics.
    9. Panopoulou, Ekaterini & Pantelidis, Theologos, 2015. "Speculative behaviour and oil price predictability," Economic Modelling, Elsevier, pages 128-136.
    10. Shu-Ping Shi & Yong Song, 2012. "Identifying Speculative Bubbles with an Infinite Hidden Markov Model," Working Paper series 26_12, Rimini Centre for Economic Analysis.
    11. repec:ipg:wpaper:2014-586 is not listed on IDEAS
    12. Holtemöller Oliver, 2013. "Explosive Preisentwicklung und spekulative Blasen auf Rohstoffmärkten / Explosive behavior and speculative bubbles on commodity markets," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 64(1), pages 405-420, January.
    13. Arora, Vipin & Gomis-Porqueras, Pedro & Shi, Shuping, 2013. "The divergence between core and headline inflation: Implications for consumers’ inflation expectations," Journal of Macroeconomics, Elsevier, pages 497-504.
    14. Morana, Claudio, 2013. "Oil price dynamics, macro-finance interactions and the role of financial speculation," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 206-226.
    15. repec:dau:papers:123456789/12798 is not listed on IDEAS
    16. Kruse, Yves Robinson & Kaufmann, Hendrik, 2015. "Bias-corrected estimation in mildly explosive autoregressions," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112897, Verein für Socialpolitik / German Economic Association.
    17. Arora, Vipin & Tanner, Matthew, 2013. "Do oil prices respond to real interest rates?," Energy Economics, Elsevier, vol. 36(C), pages 546-555.
    18. Gronwald, Marc, 2016. "Explosive oil prices," Energy Economics, Elsevier, vol. 60(C), pages 1-5.
    19. Hendrik Kaufmannz & Robinson Kruse, 2013. "Bias-corrected estimation in potentially mildly explosive autoregressive models," CREATES Research Papers 2013-10, Department of Economics and Business Economics, Aarhus University.
    20. Balcilar, Mehmet & Katzke, Nico & Gupta, Rangan, 2017. "Date-stamping US housing market explosivity," Economics Discussion Papers 2017-44, Kiel Institute for the World Economy (IfW).

    More about this item

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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