IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v452y2016icp60-68.html
   My bibliography  Save this article

The crude oil price bubbling and universal scaling dynamics of price volatility

Author

Listed:
  • García-Carranco, Sergio M.
  • Bory-Reyes, Juan
  • Balankin, Alexander S.

Abstract

The main goal of this paper is to reveal the effect of crude oil price bubbling on the price volatility dynamics. For this purpose, the time series of volatility at different horizons are mapped into a model of kinetic roughening of interface growing in a stochastic environment. In this way, we found that the volatility dynamics obeys the Family-Viscek dynamic scaling ansatz. Although during the period from January 2, 1986 to July 25, 2014 the volatility remains a slightly anti-persistent, the dynamic exponent is found to be quite different during different regimes of price evolution. Accordingly, we define the intrinsic time of price volatility and metric of volatility horizons. This allows us to construct the Langevin-type equation governing the volatility dynamics during bubble and non-bubble periods. The data analysis indicates that the bubbling does not affect the intrinsic time of volatility, but strongly affect the metric of volatility horizons. In this regard, numerical data suggest the existence of two universal metrics characterizing the volatility dynamics during the bubble and non-bubble regimes of crude oil price evolution, respectively. The results of this work help us to get a further insight into the dynamics of crude oil price volatility.

Suggested Citation

  • García-Carranco, Sergio M. & Bory-Reyes, Juan & Balankin, Alexander S., 2016. "The crude oil price bubbling and universal scaling dynamics of price volatility," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 452(C), pages 60-68.
    • Handle: RePEc:eee:phsmap:v:452:y:2016:i:c:p:60-68
    DOI: 10.1016/j.physa.2016.02.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437116001722
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2016.02.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lautier, Delphine & Raynaud, Franck, 2011. "Statistical properties of derivatives: A journey in term structures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(11), pages 2009-2019.
    2. Yuan, Ying & Zhuang, Xin-tian & Liu, Zhi-ying & Huang, Wei-qiang, 2014. "Analysis of the temporal properties of price shock sequences in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 235-246.
    3. Salisu, Afees A. & Fasanya, Ismail O., 2013. "Modelling oil price volatility with structural breaks," Energy Policy, Elsevier, vol. 52(C), pages 554-562.
    4. Pawe{l} Sieczka & Janusz A. Ho{l}yst, 2008. "Correlations in commodity markets," Papers 0803.3884, arXiv.org, revised Jan 2009.
    5. Serletis, Apostolos & Rosenberg, Aryeh Adam, 2007. "The Hurst exponent in energy futures prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 325-332.
    6. Alvarez-Ramirez, J. & Alvarez, J. & Rodríguez, E., 2015. "Asymmetric long-term autocorrelations in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 424(C), pages 330-341.
    7. Alvarez-Ramirez, Jose & Ibarra-Valdez, Carlos & Bernabe, Araceli & Rodriguez, Eduardo, 2005. "Power-law periodicity in the 2003–2004 crude oil price dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 349(3), pages 625-640.
    8. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Yetkiner, Hakan, 2014. "Are there really bubbles in oil prices?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 631-638.
    9. Huang, Shupei & An, Haizhong & Gao, Xiangyun & Huang, Xuan, 2015. "Identifying the multiscale impacts of crude oil price shocks on the stock market in China at the sector level," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 434(C), pages 13-24.
    10. Aloui, Chaker & Jammazi, Rania, 2015. "Dependence and risk assessment for oil prices and exchange rate portfolios: A wavelet based approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 436(C), pages 62-86.
    11. Power, Gabriel J. & Turvey, Calum G., 2010. "Long-range dependence in the volatility of commodity futures prices: Wavelet-based evidence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(1), pages 79-90.
    12. Yuan, Ying & Zhuang, Xin-tian & Jin, Xiu & Huang, Wei-qiang, 2014. "Stable distribution and long-range correlation of Brent crude oil market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 173-179.
    13. Zhang, Yue-Jun & Zhang, Lu, 2015. "Interpreting the crude oil price movements: Evidence from the Markov regime switching model," Applied Energy, Elsevier, vol. 143(C), pages 96-109.
    14. Gu, Rongbao & Chen, Hongtao & Wang, Yudong, 2010. "Multifractal analysis on international crude oil markets based on the multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(14), pages 2805-2815.
    15. Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo, 2008. "Short-term predictability of crude oil markets: A detrended fluctuation analysis approach," Energy Economics, Elsevier, vol. 30(5), pages 2645-2656, September.
    16. Liu, Li & Wan, Jieqiu, 2011. "A study of correlations between crude oil spot and futures markets: A rolling sample test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3754-3766.
    17. Ma, Feng & Wei, Yu & Huang, Dengshi & Zhao, Lin, 2013. "Cross-correlations between West Texas Intermediate crude oil and the stock markets of the BRIC," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(21), pages 5356-5368.
    18. He, Ling-Yun & Chen, Shu-Peng, 2011. "A new approach to quantify power-law cross-correlation and its application to commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3806-3814.
    19. Jiang, Zhi-Qiang & Xie, Wen-Jie & Zhou, Wei-Xing, 2014. "Testing the weak-form efficiency of the WTI crude oil futures market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 405(C), pages 235-244.
    20. Alvarez-Ramirez, Jose & Cisneros, Myriam & Ibarra-Valdez, Carlos & Soriano, Angel, 2002. "Multifractal Hurst analysis of crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 313(3), pages 651-670.
    21. Zapart, Christopher A., 2015. "Econophysics: A challenge to econometricians," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 318-327.
    22. Pal, Mayukha & Madhusudana Rao, P. & Manimaran, P., 2014. "Multifractal detrended cross-correlation analysis on gold, crude oil and foreign exchange rate time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 452-460.
    23. An, Haizhong & Gao, Xiangyun & Fang, Wei & Huang, Xuan & Ding, Yinghui, 2014. "The role of fluctuating modes of autocorrelation in crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 393(C), pages 382-390.
    24. Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2011. "Structural changes and volatility transmission in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4317-4324.
    25. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2010. "Auto-correlated behavior of WTI crude oil volatilities: A multiscale perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(24), pages 5759-5768.
    26. Bernabe, Araceli & Martina, Esteban & Alvarez-Ramirez, Jose & Ibarra-Valdez, Carlos, 2004. "A multi-model approach for describing crude oil price dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 338(3), pages 567-584.
    27. Liu, Li & Ma, Guofeng, 2014. "Cross-correlation between crude oil and refined product prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 284-293.
    28. Delphine Lautier & Franck Raynaud, 2011. "Statistical properties of derivatives: a journey in term structures," Post-Print halshs-00640915, HAL.
    29. repec:clg:wpaper:2007-02 is not listed on IDEAS
    30. He, Ling-Yun & Chen, Shu-Peng, 2010. "Are crude oil markets multifractal? Evidence from MF-DFA and MF-SSA perspectives," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(16), pages 3218-3229.
    31. Lutz Kilian & Daniel P. Murphy, 2012. "Why Agnostic Sign Restrictions Are Not Enough: Understanding The Dynamics Of Oil Market Var Models," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1166-1188, October.
    32. Wang, Yudong & Liu, Li, 2010. "Is WTI crude oil market becoming weakly efficient over time?: New evidence from multiscale analysis based on detrended fluctuation analysis," Energy Economics, Elsevier, vol. 32(5), pages 987-992, September.
    33. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    34. Delphine Lautier & Franck Raynaud, 2011. "Statistical properties of derivatives : a journey in term structures," Post-Print halshs-00640808, HAL.
    35. Zhang, Tao & Ma, Guofeng & Liu, Guangsheng, 2015. "Nonlinear joint dynamics between prices of crude oil and refined products," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 444-456.
    36. Liu, Li, 2014. "Cross-correlations between crude oil and agricultural commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 395(C), pages 293-302.
    37. Sornette, Didier & Woodard, Ryan & Zhou, Wei-Xing, 2009. "The 2006–2008 oil bubble: Evidence of speculation, and prediction," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1571-1576.
    38. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2011. "Detrended fluctuation analysis on spot and futures markets of West Texas Intermediate crude oil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(5), pages 864-875.
    39. Martina, Esteban & Rodriguez, Eduardo & Escarela-Perez, Rafael & Alvarez-Ramirez, Jose, 2011. "Multiscale entropy analysis of crude oil price dynamics," Energy Economics, Elsevier, vol. 33(5), pages 936-947, September.
    40. Zhuang, Xiaoyang & Wei, Yu & Zhang, Bangzheng, 2014. "Multifractal detrended cross-correlation analysis of carbon and crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 399(C), pages 113-125.
    41. repec:dau:papers:123456789/5528 is not listed on IDEAS
    42. Sieczka, Paweł & Hołyst, Janusz A., 2009. "Correlations in commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(8), pages 1621-1630.
    43. Fan, Ying & Liang, Qiang & Wei, Yi-Ming, 2008. "A generalized pattern matching approach for multi-step prediction of crude oil price," Energy Economics, Elsevier, vol. 30(3), pages 889-904, May.
    44. Zhang, Yue-Jun & Wang, Jing, 2015. "Exploring the WTI crude oil price bubble process using the Markov regime switching model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 421(C), pages 377-387.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vera Ivanyuk, 2021. "Modeling of Crisis Processes in the Financial Market," Economies, MDPI, vol. 9(4), pages 1-17, October.
    2. Chang, Chiu-Lan, 2024. "Extreme events, economic uncertainty and speculation on occurrences of price bubbles in crude oil futures," Energy Economics, Elsevier, vol. 130(C).
    3. Vera Ivanyuk, 2023. "Development of an Econometric Model of Crisis and Assessment of the Crisis Risk," Mathematics, MDPI, vol. 11(22), pages 1-29, November.
    4. Ayben Koy, 2022. "Regime Switching Mechanism during Energy Futures Price Bubbles," International Journal of Energy Economics and Policy, Econjournals, vol. 12(1), pages 373-382.
    5. Theodosios Perifanis, 2019. "Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods," Energies, MDPI, vol. 12(14), pages 1-16, July.
    6. Zhenhua Liu & Zhihua Ding & Tao Lv & Jy S. Wu & Wei Qiang, 2019. "Financial factors affecting oil price change and oil-stock interactions: a review and future perspectives," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 207-225, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Naeem, Muhammad Abubakr & Farid, Saqib & Yousaf, Imran & Kang, Sang Hoon, 2023. "Asymmetric efficiency in petroleum markets before and during COVID-19," Resources Policy, Elsevier, vol. 86(PA).
    2. Lahmiri, Salim, 2017. "A study on chaos in crude oil markets before and after 2008 international financial crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 466(C), pages 389-395.
    3. Yuan, Ying & Zhuang, Xin-tian & Jin, Xiu & Huang, Wei-qiang, 2014. "Stable distribution and long-range correlation of Brent crude oil market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 173-179.
    4. Jiang, Zhi-Qiang & Xie, Wen-Jie & Zhou, Wei-Xing, 2014. "Testing the weak-form efficiency of the WTI crude oil futures market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 405(C), pages 235-244.
    5. Liu, Li, 2014. "Cross-correlations between crude oil and agricultural commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 395(C), pages 293-302.
    6. Zhou, Weijie & Dang, Yaoguo & Gu, Rongbao, 2013. "Efficiency and multifractality analysis of CSI 300 based on multifractal detrending moving average algorithm," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(6), pages 1429-1438.
    7. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2011. "Detrended fluctuation analysis on spot and futures markets of West Texas Intermediate crude oil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(5), pages 864-875.
    8. Arshad, Shaista & Rizvi, Syed Aun R. & Haroon, Omair & Mehmood, Fahad & Gong, Qiang, 2021. "Are oil prices efficient?," Economic Modelling, Elsevier, vol. 96(C), pages 362-370.
    9. Wei, Yu & Wang, Yudong & Huang, Dengshi, 2011. "A copula–multifractal volatility hedging model for CSI 300 index futures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4260-4272.
    10. Zhang, Shuchang & Guo, Yaoqi & Cheng, Hui & Zhang, Hongwei, 2021. "Cross-correlations between price and volume in China's crude oil futures market: A study based on multifractal approaches," Chaos, Solitons & Fractals, Elsevier, vol. 144(C).
    11. Ghazani, Majid Mirzaee & Khosravi, Reza, 2020. "Multifractal detrended cross-correlation analysis on benchmark cryptocurrencies and crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 560(C).
    12. Zhang, Yue-Jun & Wang, Jing, 2015. "Exploring the WTI crude oil price bubble process using the Markov regime switching model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 421(C), pages 377-387.
    13. Ruan, Qingsong & Bao, Junjie & Zhang, Manqian & Fan, Limin, 2019. "The effects of exchange rate regime reform on RMB markets: A new perspective based on MF-DCCA," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 522(C), pages 122-134.
    14. Ji, Qiang & Guo, Jian-Feng, 2015. "Market interdependence among commodity prices based on information transmission on the Internet," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 426(C), pages 35-44.
    15. Yuan, Ying & Zhuang, Xin-tian & Liu, Zhi-ying & Huang, Wei-qiang, 2014. "Analysis of the temporal properties of price shock sequences in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 235-246.
    16. Wang, Yudong & Wu, Chongfeng, 2012. "What can we learn from the history of gasoline crack spreads?: Long memory, structural breaks and modeling implications," Economic Modelling, Elsevier, vol. 29(2), pages 349-360.
    17. Hongtao Chen & Lianghua Chen, 2015. "Multifractal spectrum analysis of Brent crude oil futures prices volatility in intercontinental exchange," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 38(1/2/3), pages 93-108.
    18. Zou, Shaohui & Zhang, Tian, 2020. "Multifractal detrended cross-correlation analysis of the relation between price and volume in European carbon futures markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    19. Ortiz-Cruz, Alejandro & Rodriguez, Eduardo & Ibarra-Valdez, Carlos & Alvarez-Ramirez, Jose, 2012. "Efficiency of crude oil markets: Evidences from informational entropy analysis," Energy Policy, Elsevier, vol. 41(C), pages 365-373.
    20. Guo, Yaoqi & Shi, Fengyuan & Yu, Zhuling & Yao, Shanshan & Zhang, Hongwei, 2022. "Asymmetric multifractality in China’s energy market based on improved asymmetric multifractal cross-correlation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 594(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:452:y:2016:i:c:p:60-68. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.