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Navigating the oil bubble: A non-linear heterogeneous-agent dynamic model of futures oil pricing

Cifarelli, Giulio and Paesani, Paolo (2018): Navigating the oil bubble: A non-linear heterogeneous-agent dynamic model of futures oil pricing.

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Abstract

We analyze short-term futures oil pricing over the 2003-2016 time-period in order to analyze the bubble-like dynamics, which characterizes the 2007-2009 years according to a large body of recent literature. Our investigation, based on a flexible three-agent model (hedgers, fundamentalist speculators and chartists), confirms the presence of a bubble price pattern, which we attribute to the strong destabilizing behaviour of fundamentalist speculators (e.g. hedge funds). The inclusion of the 2009-2016 sub-period, in spite of sharp and unexpected fluctuations in oil prices and a significant increase in the influence of geopolitical factors, fails to invalidate our financial interpretation.

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