Mean Reversion Versus Random Walk in Oil and Natural Gas Prices

Abstract

SummaryThe goals of the paper are as follows: (i) review some qualitative properties of oil and gas prices in the last 15 years; (ii) propose some mathematical elements towards a definition of mean reversion that would not be reduced to the form of the drift in a stochastic differential equation; (iii) conduct econometric tests in order to conclude whether mean reversion still exists in the energy commodity price behavior. Regarding the third point, a clear “break” in the properties of oil and natural gas prices and volatility can be exhibited in the period 2000–2001.

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