Question 13.43

13.43 OPEC basket prices.

In 2005, OPEC introduced a basket price which is the average price of seven blends from different OPEC countries. OPEC uses the basket price to monitor world oil market conditions. Consider data on the daily basket price from the beginning of January 2012 to the middle of August 2014.25

opec

  1. Make a time plot of the price series. Describe any important features of the time series.
  2. Obtain the first differences for the series and test them for randomness. What do you conclude?
  3. Would you conclude that the price series behaves as a random walk? Explain.

13.43

(a) There is no consistent trend or seasonal pattern, but there are short runs where the value rises and falls. (b) The ACF shows the first differences of the price series are not random. (c) The first differences in a random walk are random; because the first differences for price are not random, it is unlikely the price series behaves like a random walk.