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Dynamic Structure of the Spot Price of Crude Oil: Does Time Aggregation Matter?

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  • William A. Barnett

    (Department of Economics, University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin)

  • Hajar Aghababa

    (Department of Economics, University of Kansas;)

Abstract

This paper assess nonlinear structures in the time series data generating mechanism of crude oil prices. We apply well-known univariate tests for nonlinearity, with distinct power functions over alternatives, but with different null hypotheses reflecting the existence of different concepts of linearity and nonlinearity in the time series literature. We utilize daily data on crude oil spot prices for over 26 years, as well as monthly data on crude oil spot prices for 41 years. Investigating the monthly price process of crude oil distinguishes this paper from existing studies of the time series structure of energy markets. All the tests detect strong evidence of general nonlinear serial dependence, as well as nonlinearity in the mean, variance, and skewness functions in the daily spot price process of crude oil. Since evidence of nonlinear dependence is less dramatic in monthly observations, nonlinear serial dependence is moderated by time aggregation in crude oil prices.

Suggested Citation

  • William A. Barnett & Hajar Aghababa, 2016. "Dynamic Structure of the Spot Price of Crude Oil: Does Time Aggregation Matter?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201602, University of Kansas, Department of Economics, revised Aug 2016.
    • Handle: RePEc:kan:wpaper:201602
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    More about this item

    Keywords

    Nonlinearity; energy market; time series analysis; crude oil prices;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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