Efficiency of Crude Oil Futures Markets: New Evidence from Multifractal Detrending Moving Average Analysis
In this paper, we examine the weak-form efficient market hypothesis of crude oil futures markets by testing for the random walk behavior of prices. Using a method borrowed from statistical physics, we find that crude oil price display weak persistent behavior for time scales smaller than a year. For time scales larger than a year, strong mean-reversion behaviors can be found. That is, crude oil futures markets are not efficient in the short-term or in the long-term. By quantifying the market inefficiency using a “multifractality degree”, we find that the futures markets are more inefficient in the long-term than in the short-term. Furthermore, we investigate the “stylized fact” of volatility dynamics on market efficiency. The simulating and empirical results indicate that volatility clustering, volatility memory and extreme volatility have adverse effects on market efficiency, especially in the long-term. Copyright Springer Science+Business Media New York 2013
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 42 (2013)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/10614/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tabak, Benjamin M. & Cajueiro, Daniel O., 2007. "Are the crude oil markets becoming weakly efficient over time? A test for time-varying long-range dependence in prices and volatility," Energy Economics, Elsevier, vol. 29(1), pages 28-36, January.
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
- Zunino, L. & Tabak, B.M. & Figliola, A. & Pérez, D.G. & Garavaglia, M. & Rosso, O.A., 2008. "A multifractal approach for stock market inefficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(26), pages 6558-6566.
- Fernandez, Viviana, 2010. "Commodity futures and market efficiency: A fractional integrated approach," Resources Policy, Elsevier, vol. 35(4), pages 276-282, December.
- R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
- Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo, 2008. "Short-term predictability of crude oil markets: A detrended fluctuation analysis approach," Energy Economics, Elsevier, vol. 30(5), pages 2645-2656, September.
- Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996.
"Fractionally integrated generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 74(1), pages 3-30, September.
- Tom Doan, . "RATS programs to replicate Baillie, Bollerslev, Mikkelson FIGARCH results," Statistical Software Components RTZ00009, Boston College Department of Economics.
- Gao-Feng Gu & Wei-Xing Zhou, 2010. "Detrending moving average algorithm for multifractals," Papers 1005.0877, arXiv.org, revised Jun 2010.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Serletis, Apostolos & Rosenberg, Aryeh Adam, 2007. "The Hurst exponent in energy futures prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 325-332.
- Lo, Andrew W, 1991.
"Long-Term Memory in Stock Market Prices,"
Econometric Society, vol. 59(5), pages 1279-313, September.
- Andrew W. Lo, 1989. "Long-term Memory in Stock Market Prices," NBER Working Papers 2984, National Bureau of Economic Research, Inc.
- Lo, Andrew W. (Andrew Wen-Chuan), 1989. "Long-term memory in stock market prices," Working papers 3014-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Tom Doan, . "RSSTATISTIC: RATS procedure to compute R/S Statistic (classical or Lo's modified)," Statistical Software Components RTS00191, Boston College Department of Economics.
- Svetlana Maslyuk & Russell Smyth, 2007.
"Unit Root Properties of Crude Oil Spot and Futures Prices,"
Monash Economics Working Papers
40-07, Monash University, Department of Economics.
- Maslyuk, Svetlana & Smyth, Russell, 2008. "Unit root properties of crude oil spot and futures prices," Energy Policy, Elsevier, vol. 36(7), pages 2591-2600, July.
- Wang, Yudong & Wu, Chongfeng & Pan, Zhiyuan, 2011. "Multifractal detrending moving average analysis on the US Dollar exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(20), pages 3512-3523.
- Apostolos Serletis, 1992.
"Unit Root Behavior in Energy Futures Prices,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 2), pages 119-128.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Charles, Amélie & Darné, Olivier, 2009.
"The efficiency of the crude oil markets: Evidence from variance ratio tests,"
Elsevier, vol. 37(11), pages 4267-4272, November.
- Amélie Charles & Olivier Darné, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Post-Print hal-00771081, HAL.
- 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.
- James D. Hamilton, 2008.
"Understanding Crude Oil Prices,"
NBER Working Papers
14492, National Bureau of Economic Research, Inc.
- Wang, Yudong & Wu, Chongfeng & Wei, Yu, 2011. "Can GARCH-class models capture long memory in WTI crude oil markets?," Economic Modelling, Elsevier, vol. 28(3), pages 921-927, May.
- Kantelhardt, Jan W. & Zschiegner, Stephan A. & Koscielny-Bunde, Eva & Havlin, Shlomo & Bunde, Armin & Stanley, H.Eugene, 2002. "Multifractal detrended fluctuation analysis of nonstationary time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 316(1), pages 87-114.
- 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.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Elder, John & Serletis, Apostolos, 2008. "Long memory in energy futures prices," Review of Financial Economics, Elsevier, vol. 17(2), pages 146-155.
When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:42:y:2013:i:4:p:393-414. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.