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The North American Natural Gas Liquids Markets are Chaotic

Abstract:
In this paper we test for deterministic chaos (i.e., nonlinear deterministic processes which look random) in seven Mont Belview, Texas, hydrocarbon markets, using monthly data from 1985:1 to 1996:12--the markets are those of ethane, propane, normal butane, iso-butane, naptha, crude oil, and natural gas. In doing so, we use the Lyapunov exponent estimator of Nychka, Ellner, Gallant, and McCaffrey (1992). We conclude that there is evidence, consistent with a chaotic nonlinear generation process in all five natural gas liquids markets.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis, Natural Gas – Markets and Prices, Natural Gas – Policy and Regulation,

Keywords: Natural gas liquids prices, statistical analysis, financial markets, GARCH, chaos, Lyapunov exponent

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-5


Published in Volume20, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.