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Modeling Energy Prices with a Markov-Switching dynamic regression model: 2005-2015

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  • Georgios Galyfianakis
  • Evagelos Drimbetas
  • Nikolaos Sariannidis

Abstract

In this paper we employ a Markov-switching dynamic regression (MS-DR) model for a period before and after the financial crisis of 2008. Using data from 2005 to 2015, we examine the behavior of five energy prices series (Crude oil WTI, Heating oil, Unleaded gasoline, Diesel and Jet kerosine). The results reveal and confirm the existence of 2 distinct regimes. The first corresponds to a tranquil (calm) regime and the other to a crisis (turbulence) regime. Furthermore, we find robust evidence for the existence of several "recessions" in energy market prices. Given the relevance of the energy prices for the real economy, but also for monetary policy and stock markets, our findings are helpful to financial managers and energy analysts. We prove the undeniable need for more energy policy and regulation in order to help investors and market participants.

Suggested Citation

  • Georgios Galyfianakis & Evagelos Drimbetas & Nikolaos Sariannidis, 2016. "Modeling Energy Prices with a Markov-Switching dynamic regression model: 2005-2015," Bulletin of Applied Economics, Risk Market Journals, vol. 3(1), pages 11-28.
    • Handle: RePEc:rmk:rmkbae:v:3:y:2016:i:1:p:11-28
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    References listed on IDEAS

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    Cited by:

    1. Christos Floros & Georgios Galyfianakis, 2020. "Bubbles in Crude Oil and Commodity Energy Index: New Evidence," Energies, MDPI, vol. 13(24), pages 1-11, December.
    2. Diteboho Xaba & Ntebogang Dinah Moroke & Ishmael Rapoo, 2019. "Modeling Stock Market Returns of BRICS with a Markov-Switching Dynamic Regression Model," Journal of Economics and Behavioral Studies, AMH International, vol. 11(3), pages 10-22.
    3. Ndiweni, Zinzile Lorna & Bonga-Bonga, Lumengo, 2022. "Contagion or decoupling? Evidence from emerging stock markets," MPRA Paper 115170, University Library of Munich, Germany.

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    More about this item

    Keywords

    Energy Market; Crude Oil; Petroleum products; Markov-Switching Dynamic Regression; Regimes;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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