Are crude oil markets multifractal? Evidence from MF-DFA and MF-SSA perspectives

Ling-Yun He and Shu-Peng Chen

Physica A: Statistical Mechanics and its Applications, 2010, vol. 389, issue 16, 3218-3229

Abstract: In this article, we investigated the multifractality and its underlying formation mechanisms in international crude oil markets, namely, Brent and WTI, which are the most important oil pricing benchmarks globally. We attempt to find the answers to the following questions: (1) Are those different markets multifractal? (2) What are the dynamical causes for multifractality in those markets (if any)? To answer these questions, we applied both multifractal detrended fluctuation analysis (MF-DFA) and multifractal singular spectrum analysis (MF-SSA) based on the partition function, two widely used multifractality detecting methods. We found that both markets exhibit multifractal properties by means of these methods. Furthermore, in order to identify the underlying formation mechanisms of multifractal features, we destroyed the underlying nonlinear temporal correlation by shuffling the original time series; thus, we identified that the causes of the multifractality are influenced mainly by a nonlinear temporal correlation mechanism instead of a non-Gaussian distribution. At last, by tracking the evolution of left- and right-half multifractal spectra, we found that the dynamics of the large price fluctuations is significantly different from that of the small ones. Our main contribution is that we not only provided empirical evidence of the existence of multifractality in the markets, but also the sources of multifractality and plausible explanations to current literature; furthermore, we investigated the different dynamical price behaviors influenced by large and small price fluctuations.

Keywords: Crude oil markets; Multifractality; MF-DFA; MF-SSA; Nonlinear temporal correlation; Non-Gaussian distribution (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (50)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:389:y:2010:i:16:p:3218-3229

DOI: 10.1016/j.physa.2010.04.007

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