Dynamic Anomaly Detection in the Chinese Energy Market During Financial Turbulence Using Ratio Mutual Information and Crude Oil Price Movements

Lin Xiao and Arash Sioofy Khoojine ()
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Lin Xiao: Faculty of Economics and Business Administration, Yibin Unversity, Yibin 644000, China
Arash Sioofy Khoojine: Faculty of Economics and Business Administration, Yibin Unversity, Yibin 644000, China

Energies, 2024, vol. 17, issue 23, 1-22

Abstract: Investigating the stability of and fluctuations in the energy market has long been of interest to researchers and financial market participants. This study aimed to analyze the Chinese energy market, focusing on its volatility and response to financial tensions. For this purpose, data from eight major financial companies, which were selected based on their market share in Shanghai’s and Shenzhen’s financial markets, were collected from January 2014 to December 2023. In this study, stock prices and trading volumes were used as the key variables to build bootstrap-based minimum spanning trees (BMSTs) using ratio mutual information (RMI). Then, using the sliding window procedure, the major network characteristics were derived to create an anomaly-detection tool using the multivariate exponentially weighted moving average (MEWMA), along with the Brent crude oil price index as a benchmark and a global oil price indicator. This framework’s stability was evaluated through stress testing with five scenarios designed for this purpose. The results demonstrate that during periods of high oil price volatility, such as during the turbulence in the stock market in 2015 and the COVID-19 pandemic in 2020, the network topologies became more centralized, which shows that the market’s instability increased. This framework successfully identifies anomalies and proves to be a valuable tool for market players and policymakers in evaluating companies that are active in the energy sector and predicting possible instabilities, which could be useful in monitoring financial markets and improving decision-making processes in the energy sector. In addition, the integration of other macroeconomic factors into this field could strengthen the identification of anomalies and be considered a field for possible research.

Keywords: energy market dynamics; anomaly detection; ratio mutual information (RMI); financial network analysis; bootstrap-based minimum spanning trees (BMSTs); multivariate exponentially weighted moving average (MEWMA) (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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