A characterization of oil price behavior - Evidence from jump models

Marc Gronwald

doi:10.1016/j.eneco.2012.06.006

A characterization of oil price behavior - Evidence from jump models

Marc Gronwald^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

44 Citations (Scopus)

Abstract

This paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH model in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil.

Original language	English
Pages (from-to)	1310-1317
Number of pages	8
Journal	Energy Economics
Volume	34
Issue number	5
DOIs	https://doi.org/10.1016/j.eneco.2012.06.006
Publication status	Published - Sept 2012
Externally published	Yes

Keywords

Climate Change
Conditional jumps
Deterministic trend
GARCH
Hotelling
Oil price

Access to Document

10.1016/j.eneco.2012.06.006

Cite this

@article{87463dc21e374dae8415346b38c6abe6,

title = "A characterization of oil price behavior - Evidence from jump models",

abstract = "This paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH model in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil.",

keywords = "Climate Change, Conditional jumps, Deterministic trend, GARCH, Hotelling, Oil price",

author = "Marc Gronwald",

note = "Funding Information: The author is grateful to the hospitality of University of California, Berkeley, while working on this paper. Financial support from the Fritz Thyssen Foundation for this research visit is gratefully acknowledged. The author is, furthermore, indebted to valuable comments by Markus Zimmer and Klaus Wohlrabe as well as two anonymous referees.",

year = "2012",

month = sep,

doi = "10.1016/j.eneco.2012.06.006",

language = "English",

volume = "34",

pages = "1310--1317",

journal = "Energy Economics",

issn = "0140-9883",

publisher = "Elsevier",

number = "5",

}

TY - JOUR

T1 - A characterization of oil price behavior - Evidence from jump models

AU - Gronwald, Marc

N1 - Funding Information: The author is grateful to the hospitality of University of California, Berkeley, while working on this paper. Financial support from the Fritz Thyssen Foundation for this research visit is gratefully acknowledged. The author is, furthermore, indebted to valuable comments by Markus Zimmer and Klaus Wohlrabe as well as two anonymous referees.

PY - 2012/9

Y1 - 2012/9

N2 - This paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH model in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil.

AB - This paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH model in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil.

KW - Climate Change

KW - Conditional jumps

KW - Deterministic trend

KW - GARCH

KW - Hotelling

KW - Oil price

UR - http://www.scopus.com/inward/record.url?scp=84862648750&partnerID=8YFLogxK

U2 - 10.1016/j.eneco.2012.06.006

DO - 10.1016/j.eneco.2012.06.006

M3 - Article

AN - SCOPUS:84862648750

SN - 0140-9883

VL - 34

SP - 1310

EP - 1317

JO - Energy Economics

JF - Energy Economics

IS - 5

ER -

A characterization of oil price behavior - Evidence from jump models

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this