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Do Global Crude Oil Markets Behave as One Great Pool? A Cyclical Analysis

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Abstract

In energy economics literature, the controversial assertion of whether crude oil markets are regionalized (Weiner in Energy J 12:95–107, 1991) or behave as one unified entity (Adelman in Energy J 5(3):1–9, 1984) is still an unsettled debate. While the proponents of globalization hypothesis trust that the crude oil markets behave as one big pool, the advocates of regionalization believe that they are segmented. To settle this debate, we tested the globalization–regionalization hypothesis by estimating the wavelet coherence, multiple correlation, cross-correlation, and club convergence at different time horizons. The results suggest that the crude oil markets remain synced over longer time horizons, thereby reaffirming the globalization argument. However, at shorter time horizons, they behave rather independently and are hence mostly regionalized.

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Notes

  1. As \( Cov(w_{1jt} ,\,\hat{w}_{1jt} ) = \hat{\beta }_{j\,} \,Cov(w_{1jt} ,w_{2jt} ) \) and \( Var\,(\hat{w}_{1jt} ) = \hat{\beta }_{j}^{2} Var(w_{2jt} ), \) where \( \hat{\beta }_{j} \) is the estimated coefficient in the regression of \( w_{1jt} \) on \( w_{2jt} \) at scale \( \lambda_{j} \). Therefore, \( \phi_{X} (\lambda_{j} ) = Corr(w_{1jt} ,\hat{w}_{1jt} ) = Corr(w_{1jt} ) = \rho_{X} (\lambda_{j} ) \) and \( \phi_{X,\tau } (\lambda_{j} ) = Corr(w_{1jt} ,\hat{w}_{1jt + \tau } ) = Corr(w_{1jt + \tau } ) = \rho_{X,\tau } (\lambda_{j} ) \).

  2. Results however should be interpreted with caution. Confidence intervals are based fisher’s result for usual bivaritae correlation. We heavily rely on simulation exercises carried by Fernández (2012), which have shown that this could be applicable for multivariate correlation also.

  3. The nature of association (positive or negative) between two time-series is however analysed through the technique of cross wavelet phase angle. In our case positive association is however obvious.

  4. For details on \( \alpha \), please see Phillips and Sul (2007).

  5. For details please refer Yu et al. (2015). The methodology discussed above has been drawn heavily from this research article.

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Authors and Affiliations

  1. MICA - The School of Ideas, Ahmadabad, India

    Niyati Bhanja

  2. School of Economics, Shri Mata Vaishno Devi University (SMVDU), Katra, India

    Arif Billah Dar

  3. Rajagiri Centre for Business Studies, Rajagiri Valley Campus, Kochi, India

    Aviral Kumar Tiwari

  4. Montpellier Business School, Montpellier, France

    Aviral Kumar Tiwari

Authors
  1. Niyati Bhanja
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  2. Arif Billah Dar
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  3. Aviral Kumar Tiwari
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Correspondence to Arif Billah Dar.

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Bhanja, N., Dar, A.B. & Tiwari, A.K. Do Global Crude Oil Markets Behave as One Great Pool? A Cyclical Analysis. J Bus Cycle Res 14, 219–241 (2018). https://doi.org/10.1007/s41549-018-0028-y

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  • DOI: https://doi.org/10.1007/s41549-018-0028-y

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