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Nonlinear Dynamics in Energy Futures

Mariano Matilla-García

Year: 2007
Volume: Volume 28
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No3-2
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Abstract:
This paper studies the possible nonlinear and chaotic nature of three energy futures: natural gas, unleaded gasoline and light crude oil. Nonlinearity is analyzed using the generalized BDS statistic, along with Kaplan�s test. The results show that nonlinearity cannot be rejected. The null hypothesis of chaos is then investigated via the stability of the largest Lyapunov exponent. Evidence of chaos is found in futures returns. Global modelling techniques, like genetic algorithms, have been used in order to estimate potential motion equations. In addition, short term forecasts in futures price movements have been conducted with these estimated equations. The results show that although forecast errors are statistically smaller than those computed with other stochastic approaches, further research on these topics needs to be done.





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