The Impact of Covid-19 on Oil Market Returns: Has Market Efficiency Being Violated?

Clement Moyo, Izunna Anyikwa and Andrew Phiri
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Izunna Anyikwa: Nelson Mandela University, South Africa.

International Journal of Energy Economics and Policy, 2023, vol. 13, issue 1, 118-127

Abstract: This study examines the effect of COVID-19 pandemic on the efficiency of oil markets from February 2nd, 2020 to August 4th, 2021. By relying on dynamic conditional correlation GARCH and Wavelet coherence techniques, we able to provide correlations between the variables across time and frequency domains. Our empirical findings point to significant yet weak correlations between COVID-19 recovery/death rates for the time period extending from early February to early May even though we observe strong correlations between WTI prices and COVID-19 health statistics in mid-April. Moreover, during this identified time period, the length of frequency cycles within the correlations decreases from 16days to 8days. Altogether, these findings imply that oil markets were inefficient between February and early May and have since turned market efficient for the remaining duration of the pandemic.

Keywords: DCC-GARCH; Wavelet coherence; WTI; Brent; OPEC; Efficiency Market Hypothesis; COVID-19 (search for similar items in EconPapers)
JEL-codes: C02 C22 G14 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2023-01-16

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