Abstract
On 18 December 2015, the 40-year old U.S. crude oil export ban was repealed. Since then U.S. crude and oil producers were allowed to reach the global market. In this paper, we study if the crude oil market efficiency increases after the lift of the export ban via the Centered Detrending Moving average Analysis (CDMA) and the Detrended Fluctuation Analysis (DFA). We examine the time-varying market inefficiency from 2011 to 2020 with different rolling windows. The results indicate that WTI becomes inefficient after the lift in medium-term. Though in short and long-term, there is evidence for the improvement of the degree of market efficiency. Generally, the WTI market presents mixed efficiency behavior at different time horizons. In one-year window, the degree of efficiency on Brent decreased while there isn’t enough evidence to conclude that Brent market efficiency increased or decreased in medium and long term. In this sense, the lift of the ban might have significant impact on WTI but not on Brent.
Highlights
Crude oil is one of the most important commodity in global economy
In this paper we explore whether the crude oil market efficiency changes after the lift using WTI Brent daily price
We studied whether or not the crude oil market moved toward efficiency after the lift of the U.S export ban
Summary
Crude oil is one of the most important commodity in global economy. Crude oil market is increasingly connected to other financial markets. The market efficiency on crude oil market is crucial to price discovery, forecasting and investment management. There is a large number of literature on crude oil market weak-form efficiency. The presence of long-range dependence in asset returns implies potential predictability, which contradicts the weak form of efficient market [1]. Hurst exponent is a popular measure of long range memory and has been widely applied to the test of weak form efficiency on crude oil market. Jiang et al [4] verify the weak-form efficiency of the crude oil futures market from 1983 to 2012 with the Detrended Fluctuation Analysis (DFA) and Detrending Moving average Analysis (DMA)
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