Dynamics in Crude Oil Prices: A Markov-Switching Autoregressive Approach Incorporating Sunspot Activity

Abstract

This paper deals with the dynamic relationship between world crude oil prices and the activities of sunspots in a two-state Markov-Switching Autoregressive (MS-AR) model. The data set used was from February 1994 to May 2023, with crude oil prices and sunspot numbers as an exogenous variable. The MS-AR framework allows for regime-dependent behavior in the intercept and autoregressive coefficients and in the impact of solar activity on oil prices. The result distinguishes two regimes characterized by different degrees of persistence and sensitivity to solar activity. State 1 is highly persistent in the movement of oil prices with a lag 1 coefficient and has a much weaker negative relationship with sunspot activity. On the other hand, State 2 shows lower persistence with a lag 1 coefficient but a stronger negative relationship with sunspots. The transition probabilities denote high stability in both regimes. Asymmetric switching behaviorfavors State1, which is the more persistent state. Model diagnostics values indicate very good fits to the data. The out-of-sample performance of the model does appear quite robust, as only a slight increase in RMSE to out-of-sample occurs. These findings help add to the present understanding of the complex dynamics governing crude oil prices and provide new insights into the possible influence of solar activity on energy markets. This regime-switching behavior found in this study has a bearing on energy policy, risk management, and the interconnections between natural phenomena and economic systems. This research underlines the need for nonlinear model approaches in capturing nuanced relationships in global energy markets.

Authors and Affiliations

Vicente Montano,Romeo Pajigal,Glenndon Sobrejuanite

Keywords

Related Articles

Identification of Calcium and Magnesium in Medicine Using Plasma Laser Spectroscopy

The identification of magnesium (Mg) in pharmaceutical products was carried out using LIPS (Laser-Induced Plasma Spectroscopy). The lasers used in the research were Nd: YAG laser and CO2 laser. The sample used was a supp...

Impact of Shoes Characteristics to Lower Back Pain in Orthotics Prosthetics Students in Jakarta

Standing for more than 20 minutes causes’ low back pain (LBP). Students majoring in prosthetics orthotics need to practice and stand for more than 2 hours per day. Long standing requirement is un-avoided in students, cau...

Company Performance and Financial Distress in Automotive and Component Companies Listed on the Indonesia Stock Exchange

One of the company's efforts is to avoid financial distress which can result in the closure of the company. The purpose of this study was to examine the effect of financial performance on financial distress. Financial di...

The Relationship of Kidney Functions in Regulating the Level of Fluids and Salts for Patients and Conducting Some Biochemical and Hormonal Variables

The study of paper is basic functions of the kidney in the body are many, the most important of which is what is represented in the role of the kidney and how to balance and maintain the normal proportions of fluids and...

Modern Methods and Means of Providing the Press and Information Organizations with Information Resources

This article discusses the methods and means of satisfying the student’s need for information resources of the press and information organizations, as well as the resources used in the formation of existing concepts in...

Download PDF file
  • EP ID EP743013
  • DOI 10.47191/ijmra/v7-i08-29
  • Views 86
  • Downloads 0

How To Cite

Vicente Montano, Romeo Pajigal, Glenndon Sobrejuanite (2024). Dynamics in Crude Oil Prices: A Markov-Switching Autoregressive Approach Incorporating Sunspot Activity. International Journal of Multidisciplinary Research and Analysis, 7(08), -. https://europub.co.uk/articles/-A-743013