The Role of Heterogeneous Agents: Speculators in Oil Markets
EWL Working Paper No. 05/2015
29 Pages Posted: 19 Aug 2015 Last revised: 19 Aug 2016
Date Written: October 1, 2015
Abstract
This study investigates the role of heterogeneous agents in oil markets and tests tales of speculators in oil price formation. Results obtained from using a non-linear heterogeneous agent model suggest that oil market prices are driven by different groups of speculators, namely fundamentalists, chartists and the newly introduced contrarians. The latter enable us to disentangle stabilizing effects previously attributed solely to fundamentalists, and they are on average the most dominating group, whereas chartists exacerbate the huge price swings in 1990, 2008 and 2011. We also show how sensitive the model outcomes are to the specification of the fundamental value, what has strong economic implications.
Keywords: Energy
JEL Classification: Q40
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