Psychological barriers in oil futures markets

Dowling, Michael and Cummins, Mark and Lucey, Brian M. (2016) Psychological barriers in oil futures markets. Energy Economics, 53. pp. 293-304. ISSN 0140-9883 (https://doi.org/10.1016/j.eneco.2014.03.022)

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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 in WTI 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.

ORCID iDs

Dowling, Michael, Cummins, Mark ORCID logoORCID: https://orcid.org/0000-0002-3539-8843 and Lucey, Brian M.;
  • Item type:Article
    ID code:82387
    Dates:
    Date
    Event
    31 January 2016
    Published
    13 April 2014
    Published Online
    25 March 2014
    Accepted
    Subjects:Social Sciences > Finance
    Department:UNSPECIFIED
    Depositing user: Pure Administrator
    Date deposited:21 Sep 2022 10:16
    Last modified:11 Nov 2024 13:37
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/82387
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