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Investigating the Behavior of Iran's Light Crude Oil Price in Short Term

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  • Seyed Abdollah Razavi
  • Mostafa Salimifar
  • Seyed Mahdi Mostafavi
  • Mortaza Baky Haskuee

Abstract

Investigate the causes of changing the oil price and modeling for predicting its volatility has always been one of the most important fields of Iran's economic literature study due to its position in Iran's economy. On the other hand, oil price volatility lead to the difficulty in the development programs. Empirical studies show that oil prices volatility are caused the structural bottlenecks (trade balance bottleneck, budget bottlenecks, etc.) in Iran's economic.Understanding the mechanism of oil prices formation can reduce the risk of oil price volatility and its negative impacts on Iran's economy. With the development of oil bourse and oil futures market, oil market changed the crude oil price formation so that the cash flow between financial markets and oil market will deviant the crude oil price from its long term direction by changing in interest rate in short-term. In this paper, it is investigated the crude oil price deviation from its long-term direction with regard to the relationship between mentioned markets in short-term. For this purpose, Fisher price jump model and Frankel theory will be used for test by using daily time series data of 2005-13 about Iran's light crude oil in different areas (different markets), as well as multivariate GARCH technique method. Also, the results show that the pricing strategy is false signal in the use of Urals crude oil in the determining of crude oil price in the Mediterranean and North West Europe markets.

Suggested Citation

  • Seyed Abdollah Razavi & Mostafa Salimifar & Seyed Mahdi Mostafavi & Mortaza Baky Haskuee, 2016. "Investigating the Behavior of Iran's Light Crude Oil Price in Short Term," Modern Applied Science, Canadian Center of Science and Education, vol. 10(3), pages 1-45, March.
    • Handle: RePEc:ibn:masjnl:v:10:y:2016:i:3:p:45
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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