Are the crude oil markets becoming more efficient over time? New evidence from a generalized spectral test

Abstract

This paper utilizes the newly developed method of a generalized spectral test to examine the weak-form efficiency of the main worldwide crude oil markets. The generalized spectral test, unlike other methods, can detect both linear and nonlinear serial dependence in the conditional mean and allows for different forms of unknown conditional heteroscedasticity. By using a “rolling sample” approach instead of an analysis of different time periods, we find that the efficiency of oil markets may depend on time periods. The main global crude oil markets reach weak-form efficiency in the long-term and the degree of efficiency of global oil markets changes over time. Among the oil markets examined in this study, the Brent and the WTI oil markets possess the highest efficiency levels, whereas the Daqing oil market has the lowest efficiency level. Apparent anti-synchronization is detected between the efficiency of Brent and WTI markets in recent years, whereas synchronization is found between the efficiency of Daqing and Dubai oil markets during the last decade.