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On the difficulty of interpreting market behaviour in an uncertain world: the case of oil futures pricing between 2003 and 2016

Author

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  • Giulio Cifarelli

    (Dipartimento di Scienze per l'Economia e l'Impresa)

  • Paolo Paesani

Abstract

Our results show that over the two cycles that characterize the 2003-2016 period a significant change in the working of oil markets occurs. Our pricing investigation,based on a three-agent model (hedgers, fundamentalist speculators and chartists),find that from 2009 onwards traditional analysis of supply and demand forecasts, loses its explanatory power and hence its credibility. The sharp and unexpected fluctuations in oil prices, compounded by unpredictable political factors and technological break-troughs (e.g. tight sands/shale oil) strongly raises uncertainty and reduces the effectiveness of customary forecasting techniques.

Suggested Citation

  • Giulio Cifarelli & Paolo Paesani, 2017. "On the difficulty of interpreting market behaviour in an uncertain world: the case of oil futures pricing between 2003 and 2016," Working Papers - Economics wp2017_16.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2017_16.rdf
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    More about this item

    Keywords

    Oil pricing; Speculation; Dynamic hedging; Logistic smooth transition; Multivariate GARCH;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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