Evolution of world crude oil market integration and diversification: A wavelet-based complex network perspective

Abstract

Previous research on the crude oil market has focused on the constant degree of the market integration or diversification, ignoring the time-varying market integration and diversification during different typical stages of the global oil price volatility. This paper proposes a novel wavelet-based complex network method to investigate the evolution feature of the world crude oil market integration and diversification from the perspective of the interdependent structural relationship of global oil prices, so that two critical reference indexes, namely the reference decision-making cycle and the target regional market, will be proposed for decision makers to better adjust their strategies. The results show that the dominant evolution cycle of the market integration from the stable stage to the high shock stage is time-varying, featuring the weekly→weekly→short yearly→short quarterly→short monthly cycle, and the dominant evolution cycle of the market diversification is also time-varying, characterized by the short monthly→weekly→long yearly→weekly→weekly cycle. These findings provide a clearer reference decision-making cycle for decision makers to create a more efficient period-oriented strategy. Two larger stable homogeneous groups of regional oil markets and the dominant regional markets in the process of the market evolution are discovered, providing more details regarding the target monitoring regional market for the oil-related early warningstrategy and hedging strategies.