A Metric and Topological Analysis of Determinism in the Crude Oil Spot Market

John T. Barkoulas; Atreya Chakraborty; Arav Ouandlous

doi:10.1016/j.eneco.2011.10.004

A Metric and Topological Analysis of Determinism in the Crude Oil Spot Market

John T. Barkoulas, Atreya Chakraborty, Arav Ouandlous

Finance

Research output: Contribution to journal › Article › peer-review

24 Scopus citations

Abstract

We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices. © 2011 Elsevier B.V.

Original language	American English
Pages (from-to)	584-591
Number of pages	8
Journal	Energy Economics
Volume	34
Issue number	2
DOIs	https://doi.org/10.1016/j.eneco.2011.10.004
State	Published - Mar 1 2012

Keywords

Chaos
Correlation dimension
Lyapunov exponents
Nonlinear dynamics
Recurrence plots

DC Disciplines

Business Administration, Management, and Operations
Finance
Finance and Financial Management
Economics

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10.1016/j.eneco.2011.10.004

http://dx.doi.org/10.1016/j.eneco.2011.10.004

Cite this

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title = "A Metric and Topological Analysis of Determinism in the Crude Oil Spot Market",

abstract = "We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices. {\textcopyright} 2011 Elsevier B.V.",

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TY - JOUR

T1 - A Metric and Topological Analysis of Determinism in the Crude Oil Spot Market

AU - Barkoulas, John T.

AU - Chakraborty, Atreya

AU - Ouandlous, Arav

PY - 2012/3/1

Y1 - 2012/3/1

N2 - We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices. © 2011 Elsevier B.V.

AB - We test whether the spot price of crude oil is determined by stochastic rules or exhibits deterministic endogenous fluctuations. In our analysis, we employ both metric (correlation dimension and Lyapunov exponents) and topological (recurrence plots) diagnostic tools for chaotic dynamics. We find that the underlying system for crude oil spot prices (i) is of high dimensionality (no stabilization of the correlation dimension), (ii) does not exhibit sensitive dependence on initial conditions, and (iii) is not characterized by the recurrence property. Thus, the empirical evidence suggests that stochastic rather than deterministic rules are present in the system dynamics of the crude oil spot market. Recurrent plot analysis indicates that volatility clustering is an adequate, but not complete, explanation of the morphology of oil spot prices. © 2011 Elsevier B.V.

KW - Chaos

KW - Correlation dimension

KW - Lyapunov exponents

KW - Nonlinear dynamics

KW - Recurrence plots

UR - https://digitalcommons.georgiasouthern.edu/econ-facpubs/79

UR - http://dx.doi.org/10.1016/j.eneco.2011.10.004

UR - http://www.scopus.com/inward/record.url?scp=84857373327&partnerID=8YFLogxK

U2 - 10.1016/j.eneco.2011.10.004

DO - 10.1016/j.eneco.2011.10.004

M3 - Article

SN - 0140-9883

VL - 34

SP - 584

EP - 591

JO - Energy Economics

JF - Energy Economics

IS - 2

ER -

A Metric and Topological Analysis of Determinism in the Crude Oil Spot Market

Abstract

Keywords

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