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Short-term predictability of crude oil markets: A detrended fluctuation analysis approach

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  • Alvarez-Ramirez, Jose
  • Alvarez, Jesus
  • Rodriguez, Eduardo
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    Abstract

    This paper analyzes the auto-correlations of international crude oil prices on the basis of the estimation of the Hurst exponent dynamics for returns over the period from 1987 to 2007. In doing so, a model-free statistical approach--detrended fluctuation analysis--that reduces the effects of non-stationary market trends and focuses on the intrinsic auto-correlation structure of market fluctuations over different time horizons, is used. Tests for time variations of the Hurst exponent indicate that over long horizons the crude oil market is consistent with the efficient market hypothesis. However, meaningful auto-correlations cannot be excluded for time horizons smaller than one month where the Hurst exponent manifests cyclic, non-periodic dynamics. This means that the market exhibits a time-varying short-term inefficient behavior that becomes efficient in the long term. The proposed methodology and its findings are put in perspective with previous studies and results.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 30 (2008)
    Issue (Month): 5 (September)
    Pages: 2645-2656

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    Handle: RePEc:eee:eneeco:v:30:y:2008:i:5:p:2645-2656

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    Web page: http://www.elsevier.com/locate/eneco

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    References

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    Citations

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    Cited by:
    1. Mohamed El Hedi Arouri & Shawkat Hammoudeh & Duc Khuong Nguyen & Amine Lahiani, 2013. "On the short- and long-run efficiency of energy and precious metal markets," Working Papers hal-00798036, HAL.
    2. Mohamed El Hedi Arouri & Duc Khuong Nguyen & Thanh Huong Dinh, 2010. "Time-varying Predictability in Crude Oil Markets: The Case of GCC Countries," Working Papers hal-00507822, HAL.
    3. Wang, Yudong & Liu, Li & Gu, Rongbao, 2009. "Analysis of efficiency for Shenzhen stock market based on multifractal detrended fluctuation analysis," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 271-276, December.
    4. Wang, Yudong & Wu, Chongfeng, 2012. "Energy prices and exchange rates of the U.S. dollar: Further evidence from linear and nonlinear causality analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2289-2297.
    5. Charles, Amélie & Darné, Olivier, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Energy Policy, Elsevier, vol. 37(11), pages 4267-4272, November.
    6. Alvarez-Ramirez, Jose & Alvarez, Jesus & Solis, Ricardo, 2010. "Crude oil market efficiency and modeling: Insights from the multiscaling autocorrelation pattern," Energy Economics, Elsevier, vol. 32(5), pages 993-1000, September.
    7. Martina, Esteban & Rodriguez, Eduardo & Escarela-Perez, Rafael & Alvarez-Ramirez, Jose, 2011. "Multiscale entropy analysis of crude oil price dynamics," Energy Economics, Elsevier, vol. 33(5), pages 936-947, September.
    8. Wang, Yudong & Liu, Li, 2010. "Is WTI crude oil market becoming weakly efficient over time?: New evidence from multiscale analysis based on detrended fluctuation analysis," Energy Economics, Elsevier, vol. 32(5), pages 987-992, September.

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