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A metric and topological analysis of determinism in the crude oil spot market

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  • Barkoulas, John T.
  • Chakraborty, Atreya
  • Ouandlous, Arav

Abstract

We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices.

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  • 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.
    • Handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:584-591
    DOI: 10.1016/j.eneco.2011.10.004
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    5. Loretta Mastroeni & Pierluigi Vellucci, 2016. ""Butterfly Effect" vs Chaos in Energy Futures Markets," Papers 1610.05697, arXiv.org.
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