ABSTRACT
Natural gas plays important role in the global energy sources, hence understanding its price behavior is important to various economic agents. This study examined whether rational bubbles existed in the three major natural gas markets by employing Fourier unit root tests and a nonparametric rank test for cointegration. Data comprises monthly data on the three largest natural gas indices in the world – Henry hub (USA), European and Asian (Japan) for the period from 2000M1–2021M12. The results reveal that the efficient market hypothesis holds in the market ruling out the possibility of arbitrage opportunities. The rank test estimates at 0.009677, 0.009872, and 0.009657 at 1% significant level for the pre-COVID-19 sample period, and at 0.009671, 0.09874, and 0.009661 at 1% significant level for the full sample period contradict the rational explosive bubble framework that suggests deviation of prices from the fundamentals. This suggests that natural gas prices markets are efficient at least in the weak form, the implication is that disruptions in the market will be short-lived as the market will fundamentally adjust back to equilibrium.