Multifractal detrended cross-correlation analysis and frequency dynamics of connectedness for energy futures markets

Bangcan Wang, Yu Wei, Yuhui Xing and Wenjiao Ding

Physica A: Statistical Mechanics and its Applications, 2019, vol. 527, issue C

Abstract: In this paper, the correlations among four major energy futures markets, i.e. electricity, coal, natural gas and crude oil, are investigated by multifractal detrended cross-correlation analysis (MF-DCCA) and a novel frequency connectedness method. The empirical results show that, firstly, there are significant multifractality in the cross-correlations among the four energy futures markets, and the cross-correlation behavior of small fluctuations is more persistent than that of large fluctuations. Secondly, the connectedness among the four energy markets is much stronger in short term than those in longer time horizons. Thirdly, in terms of the static connectedness measurement without time frequency and on time horizon of 4 to 10 days, electricity futures market dominates other energy markets by contributing the largest positive net connectedness in the system. Finally, when the dynamic connectedness is considered, we find that at different time periods, the four energy markets play various roles in the system by offering time-varying positive or negative net connectedness to other markets. The electricity futures market, however, transmits the largest positive net connectedness in recent years, especially on time horizons longer than 4 days.

Keywords: MF-DCCA; Variance decomposition; Frequency connectedness; Energy futures (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:527:y:2019:i:c:s0378437119307186

DOI: 10.1016/j.physa.2019.121194

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