Nonlinear oil price dynamics –a tale of heterogeneous speculators?

While some of the recent surge of oil prices can be attributed to robust global demandat a time of tight production capacities, commentators occasionally also blame theimpact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartistsmay tend to destabilize the market, fundamentalists exercise a stabilizing effect onthe price dynamics. Using monthly data for WTI oil prices, our STR-GARCH esti-mates indicate that oil price cycles may indeed emerge due to the nonlinear interplaybetween different trader types.[....]