A Dynamic Analysis of Market Efficiency on Benchmark Crude oil markets: Based on the Adaptive Market Hypothesis

This paper examines the applicability of the adaptive market hypothesis (AMH) as an evolutionary alternative to the efficient market hypothesis (EMH) by studying daily returns on the three benchmark crude oils. The data coverage of daily returns is from January 2th 2003 to March 5th 2018. In this paper, two different tests in the form of two distinguished classes (linear and nonlinear) have been used to evaluate adaptive behavior of returns. The results that were obtained from linear (automatic portmanteau) and nonlinear (generalized spectral) tests represent the oscillatory behavior of returns that corresponds with the adaptive market hypothesis. A rolling window approach with different lengths is applied to track whether returns are predictable or not through time. Among the oil markets examined in this study, the Brent and the WTI oil markets possess the highest efficiency levels, whereas the OPEC oil basket has the lowest efficiency level. In addition, results show that the market conditions for WTI and Brent are consistent with the implication of the AMH model.  However, the behavior of OPEC basket data indicates that as we approach longer window lengths (e.g. from 100 to 500-days) the applicability of the adaptive market hypothesis decreases. JEL Classification: C12 G14 Q40 Keywords: Evolutionary; Adaptive Market Hypothesis; Weak-form efficiency; Crude oil prices.