Psychological barriers in oil futures markets
Citation:
Dowling, M. Cummins, M. Lucey, B.M., Psychological barriers in oil futures markets, Energy Economics, 53, 2016, 293 - 304Download Item:
Dowling-Psychological barriers in oil futures.pdf (Published (author's copy) - Peer Reviewed) 1.466Mb
Abstract:
WTI and Brent futures are tested for the presence of psychological barriers around $10 price levels, applying a
multiple hypothesis testing approach for statistical robustness. Psychological barriers are found to be present in
Brent prices but not inWTI prices,which is argued to be due to the more prominent role that Brent plays as a global
benchmark and, based on recent behavioural finance research, the greater complexity inherent in Brent
fundamental value determination. Brent particularly displays evidence that when breaching a $10 barrier
level from below with rising prices, the trend is for prices to fall on average subsequently. Similar
behavioural-based patterns are evidenced at the $1 barrier level for the WTI–Brent spread. We show that
psychological barriers only appear to influence prices in the pre-credit crisis period of 1990–2006, with such
effects dissipating during the crisis and as markets reverted back to wider economy focused fundamentals. 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 1–5 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
price dynamics
Author's Homepage:
http://people.tcd.ie/bluceyDescription:
PUBLISHED
Author: LUCEY, BRIAN
Type of material:
Journal ArticleSeries/Report no:
Energy Economics53
Availability:
Full text availableDOI:
http://dx.doi.org/10.1016/j.eneco.2014.03.022Licences: