Dynamics in Crude Oil Prices: A Markov-Switching Autoregressive Approach Incorporating Sunspot Activity
Journal Title: International Journal of Multidisciplinary Research and Analysis - Year 2024, Vol 7, Issue 08
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
- EP ID EP743013
- DOI 10.47191/ijmra/v7-i08-29
- Views 76
- Downloads 0
Environment, Social and Governance Investment, the Current Situation and Proposed Solutions for Vietnam
Currently, ESG is a global trend due to climate change and the urgency of green development. Therefore, many investors have the demand for sustainable investment in general and ESG investment in particular. This presents...
Changes in Mobile Telephony in Congo-Brazzaville
The development of telecommunications has made it possible to reveal market niches, once considered unprofitable. This is the case of mobile telephony, which is now experiencing undeniable success in the world and Congo-...
Relationship between Arm Length, Power Arm Muscles and Power Lemb Muscles on Butterfly Style Swimming Achievement
This study aims to determine the relationship between arm length, arm muscle power and leg muscle power on butterfly swimming performance. This research uses a survey method. Data collection techniques use tests and meas...
The Experiential Marketing, Experience Engagement, Reference Group, and Customer Satisfaction Toward Purchase Intention of Virtual Hotel Operators (VHO): Indonesian Context
Budget traveling has developed to become a potential niche market in the hospitality industry as an increasing number of backpackers and domestic tourists with limited disposable income. This niche market has grown to be...
Implementation of Education Re-Entry Policy for Adolescent Mothers in Urambo District, Tanzania
In Tanzania, adolescent mothers were pre+viously been prohibited from returning to public secondary schools particularly during the fifth government phase led by the late President John Joseph Pombe Magufuli. However, un...