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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

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  • Cifarelli, Giulio
  • Paesani, Paolo

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

  • Cifarelli, Giulio & Paesani, Paolo, 2017. "On the difficulty of interpreting market behaviour in an uncertain world: the case of oil futures pricing between 2003 and 2016," MPRA Paper 84009, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:84009
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    References listed on IDEAS

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    More about this item

    Keywords

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

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F30 - International Economics - - International Finance - - - General
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G1 - Financial Economics - - General Financial Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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