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Multifractal detrended cross-correlation analysis and frequency dynamics of connectedness for energy futures markets

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  • Wang, Bangcan
  • Wei, Yu
  • Xing, Yuhui
  • Ding, Wenjiao

Abstract

In this paper, the correlations among four major energy futures markets, i.e. electricity, coal, natural gas and crude oil, are investigated by multifractal detrended cross-correlation analysis (MF-DCCA) and a novel frequency connectedness method. The empirical results show that, firstly, there are significant multifractality in the cross-correlations among the four energy futures markets, and the cross-correlation behavior of small fluctuations is more persistent than that of large fluctuations. Secondly, the connectedness among the four energy markets is much stronger in short term than those in longer time horizons. Thirdly, in terms of the static connectedness measurement without time frequency and on time horizon of 4 to 10 days, electricity futures market dominates other energy markets by contributing the largest positive net connectedness in the system. Finally, when the dynamic connectedness is considered, we find that at different time periods, the four energy markets play various roles in the system by offering time-varying positive or negative net connectedness to other markets. The electricity futures market, however, transmits the largest positive net connectedness in recent years, especially on time horizons longer than 4 days.

Suggested Citation

  • Wang, Bangcan & Wei, Yu & Xing, Yuhui & Ding, Wenjiao, 2019. "Multifractal detrended cross-correlation analysis and frequency dynamics of connectedness for energy futures markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 527(C).
    • Handle: RePEc:eee:phsmap:v:527:y:2019:i:c:s0378437119307186
    DOI: 10.1016/j.physa.2019.121194
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    Citations

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    Cited by:

    1. Hasan, Mudassar & Arif, Muhammad & Naeem, Muhammad Abubakr & Ngo, Quang-Thanh & Taghizadeh–Hesary, Farhad, 2021. "Time-frequency connectedness between Asian electricity sectors," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 208-224.
    2. Cui Jinxin & Zou Huiwen, 2020. "Connectedness Among Economic Policy Uncertainties: Evidence from the Time and Frequency Domain Perspectives," Journal of Systems Science and Information, De Gruyter, vol. 8(5), pages 401-433, October.
    3. Choi, Sun-Yong, 2022. "Volatility spillovers among Northeast Asia and the US: Evidence from the global financial crisis and the COVID-19 pandemic," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 179-193.
    4. Nagayasu, Jun, 2021. "Causal and frequency analyses of purchasing power parity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    5. Tadahiro Nakajima & Yuki Toyoshima, 2020. "Examination of the Spillover Effects among Natural Gas and Wholesale Electricity Markets Using Their Futures with Different Maturities and Spot Prices," Energies, MDPI, vol. 13(7), pages 1-14, March.
    6. Wang, Feng & Ye, Xin & Chen, HongTao & Wu, Congxin, 2021. "A portfolio strategy of stock market based on mean-MF-X-DMA model," Chaos, Solitons & Fractals, Elsevier, vol. 143(C).
    7. Zhang, Yulian & He, Xie & Nakajima, Tadahiro & Hamori, Shigeyuki, 2020. "Oil, Gas, or Financial Conditions-Which One Has a Stronger Link with Growth?," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    8. Farhang Rahmani & Mohammad Hadi Fattahi, 2021. "A multifractal cross-correlation investigation into sensitivity and dependence of meteorological and hydrological droughts on precipitation and temperature," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 109(3), pages 2197-2219, December.
    9. Wang, Yilin & Zhang, Zeming & Li, Xiafei & Chen, Xiaodan & Wei, Yu, 2020. "Dynamic return connectedness across global commodity futures markets: Evidence from time and frequency domains," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 542(C).
    10. Bai, Lan & Zhang, Xuhui & Liu, Yuntong & Wang, Qian, 2019. "Economic risk contagion among major economies: New evidence from EPU spillover analysis in time and frequency domains," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 535(C).

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