Crude oil market and geopolitical events: an analysis based on information-theory-based quantifiers

TL;DR

This study evaluates the informational efficiency of the oil market over three decades using information-theoretic measures, revealing how major geopolitical events influence market dynamics and efficiency.

Contribution

It introduces the application of permutation entropy and statistical complexity to analyze oil market efficiency and its changes due to geopolitical events.

Findings

Geopolitical events affect market informational structure

Permutation entropy captures market efficiency variations

Market dynamics show detectable shifts during major events

Abstract

This paper analyzes the informational efficiency of oil market during the last three decades, and examines changes in informational efficiency with major geopolitical events, such as terrorist attacks, financial crisis and other important events. The series under study is the daily prices of West Texas Intermediate (WTI) in USD/BBL, commonly used as a benchmark in oil pricing. The analysis is performed using information-theory-derived quantifiers, namely permutation entropy and permutation statistical complexity. These metrics allow capturing the hidden structure in the market dynamics, and allow discriminating different degrees of informational efficiency. We find that some geopolitical events impact on the underlying dynamical structure of the market.