Time-Varying Market Efficiency: A Focus on Crude Oil and Commodity Dynamics

Abstract

This study investigated market efficiency across 20 major commodity assets, including crude oil, utilizing fractal analysis. Additionally, a rolling window approach was employed to capture the time-varying nature of efficiency in these markets. A Granger causality test was applied to assess the influence of crude oil on other commodities. Key findings revealed significant inefficiencies in RBOB(Reformulated Blendstock for Oxygenated Blending) Gasoline, Palladium, and Brent Crude Oil, largely driven by geopolitical risks that exacerbated supply–demand imbalances. By contrast, Copper, Kansas Wheat, and Soybeans exhibited greater efficiency because of their stable market dynamics. The COVID-19 pandemic underscored the time-varying nature of efficiency, with short-term volatility causing price fluctuations. Geopolitical events such as the Russia–Ukraine War exposed some commodities to shocks, while others remained resilient. Brent Crude Oil was a key driver of market inefficiency. Our findings align with Fractal Fractional (FF) concepts. The MF-DFA method revealed self-similarity in market prices, while inefficient markets exhibited long-memory effects, challenging the Efficient Market Hypothesis. Additionally, rolling window analysis captured evolving market efficiency, influenced by external shocks, reinforcing the relevance of fractal fractional models in financial analysis. Furthermore, these findings can help traders, policymakers, and researchers, by highlighting Brent Crude Oil as a key market indicator and emphasizing the need for risk management and regulatory measures.