MARKET EFFICIENCY IN NON-RENEWABLE RESOURCE MARKETS: EVIDENCE FROM STATIONARITY TESTS WITH STRUCTURAL CHANGES

Alper Kara (), Dilem Yıldırım () and Gül İpek Tunç ()
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Alper Kara: Central Bank of the Republic of Turkey, Banking and Financial Institutions Department, Ankara, Turkey
Dilem Yıldırım: Department of Economics, Middle East Technical University, Ankara, Turkey
Gül İpek Tunç: Department of Economics, Middle East Technical University, Ankara, Turkey

No 2103, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This study aims to investigate the efficient market hypothesis for a number of non-renewable resources over the period 1980Q1-2019Q4. We use two different stationarity tests, one is designed to capture smooth breaks, and the other one is designed to detect abrupt changes in the prices. With the use of the stationarity tests, we aim to overcome the low power issue of the commonly utilized unit root tests with stationary but persistent data. Moreover, given the inference of the existing studies for the importance of structural breaks in the analysis of stochastic properties of non-renewable natural resource prices, we utilize both smooth and instant breaks in our analysis to account for the fact that misspecification of the functional form of the breaks could be as problematic as ignoring the breaks. Our empirical results reveal significant evidence of trend stationarity in almost all prices with structural changes related to market-specific and global economic events, though concerns on economic uncertainties appeared to be effective, especially on precious metals. The only exception is silver, with stationarity being rejected for all specifications considered in the paper, suggesting that shocks to silver are mostly permanent in nature and it is characterized by the efficient market hypothesis.

Keywords: Long-run variance estimation; Market efficiency; Non-renewable resource price; Stationarity test; Structural change (search for similar items in EconPapers)
JEL-codes: C12 C22 Q31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2021-04, Revised 2021-04
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