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Psychological Barriers in Oil Futures Markets

30 Pages Posted: 28 Aug 2012 Last revised: 18 Oct 2014

Michael M. Dowling

ESC Rennes School of Business

Mark Cummins

Dublin City University Business School

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Ljubljana - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 8, 2013

Abstract

WTI and Brent futures are tested for the presence of psychological barriers around $10 price levels applying a multiple hypothesis testing approach for robustness. Psychological barriers are present in Brent pricing but not in WTI pricing, which is argued, based on recent behavioural finance research, to be due to the greater uncertainty inherent in Brent fundamental value determination. Particularly Brent displays significant resistance when breaching from below a $10 barrier level. Similar patterns are present at the $1 barrier level for the WTI-Brent spread. A range of reaction windows are applied with the main finding being that the trading potential around such psychological barrier levels is primarily in the immediate 1-2 days following a breach. The research contributes to the scant existing research on psychological influences on energy market traders, and suggests strong potential for further application of behavioural finance theories to improving understanding of energy markets pricing dynamics.

Keywords: Brent, WTI, psychological barriers, clustering, WTI-Brent spread, multiple hypothesis testing

JEL Classification: G14, G15, O13, Q43

Suggested Citation

Dowling, Michael M. and Cummins, Mark and Lucey, Brian M., Psychological Barriers in Oil Futures Markets (July 8, 2013). Energy Economics, Forthcoming; Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2137681 or http://dx.doi.org/10.2139/ssrn.2137681

Michael M. Dowling (Contact Author)

ESC Rennes School of Business ( email )

Rue Robert d'arbrissel, 2
Rennes, 35000
France

Mark Cummins

Dublin City University Business School ( email )

Dublin 9
Ireland

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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