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The North American Natural Gas Liquids Markets are Chaotic

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

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

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.