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Unit Root Behavior in Energy Futures Prices

Abstract:
This paper re-examines the empirical evidence for random walk type behavior in energy futures prices. In doing so, tests for unit roots in the univariate time-series representation of the daily crude oil, heating oil, and unleaded gasoline series are performed using recent state-of-the-art methodology. The results show that the unit root hypothesis can be rejected if allowance is made for the possibility of a one-time break in the intercept and the slope of the trend function at an unknown point in time.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Energy futures prices, Unit root behavior, Oil, Gasoline

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No2-6


Published in Volume 13, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.