This paper re-examines the empirical evidence for random walk type behavior in energy futures prices. In doing so, tests for unit roots in the univariate time-series representation of the daily crude oil, heating oil, and unleaded gasoline series are performed using recent state-of-the-art methodology. The results show that the unit root hypothesis can be rejected if allowance is made for the possibility of a one-time break in the intercept and the slope of the trend function at an unknown point in time.
ChristianoLawrence J. “Searching for a Break in GNP.” National Bureau of Economic Research Working Paper 2695.
2.
DickeyDavid A.FullerWayne A.. “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root.” Econometrica49 (1981) 1057-72.
3.
FullerWayne A.Introduction to Statistical Time Series. New York: John Wiley and Sons (1976).
4.
HsiehD.A. “The Statistical properties of Daily Foreign Exchange Rates: 1974-1983.” Journal of International Economics24 (1988) 129-145.
5.
NelsonCharles R.PlosserCharles I.. “Trends and Random Walks in Macroeconomic Time Series: Some Evidence and Implications.” Journal of Monetary Economics10 (1982) 139-162.
6.
PerronPierre. “Trends and Random Walks in Macroeconomic Time Series: Further Evidence From a New Approach.” Journal of Economic Dynamics and Control12 (1988) 297-332.
7.
PerronPierre. “The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis.” Econometrica57 (1989) 1361-1401.
8.
PerronPierre. “Tests of Joint Hypotheses in Time Series Regression With a Unit Root,” in Advances in Econometrics: Co-Integregation, Spurious Regression and Unit Roots, Vol. 8, G.F. Rhodes and FombyT.B. (eds.), JAI Press, 1990.
9.
PhillipsPeter C.B..PerronPierre “Testing for a Unit Root in Time Series Regression.” Biometrica75 (1988) 335-46.
10.
SummersLaurence H. “Does the Stock Market Rationally Reflect Fundamental Values.” Journal of Finance41 (1986) 591-601.
11.
ZivotE.AndrewsD.W.K.. “Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis.” Cowles Foundation discussion Paper No. 944 (1990) Yale University.