Power Laws and Bubbles in Oil Prices
8 Pages Posted: 19 Oct 2017
Date Written: October 18, 2017
We analyzed power law (Pareto) distributions of one-minute oil prices through the US Oil Fund (Ticker symbol USO), from January 1 through March 31, 2011. Using the daily power law exponent, α, we determined a critical value which predicted a price trend reversal. This critical value, estimated to be 1.2, may be related to extreme volatility. As the daily α crossed the critical value, the daily percent change of the USO reversed. These crossovers were used to trigger Buy and Sell signals that would have resulted in a 15% return on investment over the study period.
Keywords: Power law, Pareto Distribution, Oil
JEL Classification: G01, G02, G13
Suggested Citation: Suggested Citation