Long memory dynamics and relative efficiency of crude oil benchmarks: An adaptive market hypothesis perspective

Abstract

In the present study, we investigate the long memory dynamics in crude oil markets from an adaptive market hypothesis (AMH) perspective. In doing so, we subject the three regional crude oil benchmarks, namely, West Texas Intermediate, Brent and Dubai crude prices to a rolling Hurst exponent analysis. Subsequently, we test for homogeneity in the degree of efficiency of crude oil benchmarks using a battery of nonparametric tests. In light of the heterogeneity in the degree of efficiency that was uncovered, we offer a relative ranking of the three benchmarks considered for the study. Our findings reveal WTI market to be relatively the most efficient followed by Brent and Dubai markets. Further, by using an extensive dataset of over 36 years, we find crude oil markets to be efficient for the most part of the study period, only to be interspersed with transient and short‐lived periods of market inefficiency. Lastly, the important implications that the study's findings have on various stakeholders are also discussed.