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Are there really bubbles in oil prices?

Authors
Journal
Physica A Statistical Mechanics and its Applications
0378-4371
Publisher
Elsevier
Publication Date
Volume
416
Identifiers
DOI: 10.1016/j.physa.2014.09.020
Keywords
  • Crude Oil Price
  • Exponential Fitting
  • Bubbles

Abstract

Abstract The aim of this paper is to identify bubbles in oil prices by using the “exponential fitting” methodology proposed by Watanabe et al. (2007) [28,29]. We use the daily US dollar closing crude oil prices of West Texas Intermediate (WTI) covering the 1986:01:02–2013:07:09 and the Brent for the 1987:05:20–2013:07:09 periods. The distinguishing feature of this study from the previous studies is that this is the first study in the literature showing the existence of bubbles in crude oil prices. We found that there are four distinct periods of persistent bubbles in the crude oil prices since 1986. Two of these persistent bubbles are before 2000 and two of them are after 2000. We conclude that further research is needed to understand better how futures markets may impact the oil price formation.

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