The Oil Price Crash in 2014/15: Was There a (Negative) Financial Bubble?

Energy Policy, Forthcoming

35 Pages Posted: 20 Jun 2016

See all articles by Dean Fantazzini

Dean Fantazzini

Moscow School of Economics, Moscow State University; National Research University Higher School of Economics

Date Written: June 18, 2016

Abstract

This paper suggests that there was a negative bubble in oil prices in 2014/15, which decreased them beyond the level justified by economic fundamentals. This proposition is corroborated by two sets of bubble detection strategies: the first set consists of tests for financial bubbles, while the second set consists of the log-periodic power law (LPPL) model for negative financial bubbles. Despite the methodological differences between these detection methods, they provided the same outcome: the oil price experienced a statistically significant negative financial bubble in the last months of 2014 and at the beginning of 2015. These results also hold after several robustness checks which consider the effect of conditional heteroskedasticity, model set-ups with additional restrictions, longer data samples, tests with lower frequency data and with an alternative proxy variable to measure the fundamental value of oil.

Keywords: Oil, WTI, Brent, Generalized Sup ADF Test, LPPL, Bubble

JEL Classification: C15, C22, C51, C53, G17, O13, Q47

Suggested Citation

Fantazzini, Dean, The Oil Price Crash in 2014/15: Was There a (Negative) Financial Bubble? (June 18, 2016). Energy Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2797577

Dean Fantazzini (Contact Author)

Moscow School of Economics, Moscow State University ( email )

GSP-2, Leninskie Gory
Moscow, 119992
Russia
+7 495 5105256 (Phone)
+7 495 5105267 (Fax)

HOME PAGE: https://sites.google.com/site/deanfantazzini/

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

HOME PAGE: http://www.hse.ru/org/persons/11532644

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