The short-term effect of COVID-19 pandemic on China's crude oil futures market: A study based on multifractal analysis

TL;DR

This study investigates the short-term impact of COVID-19 on China's Shanghai crude oil futures market using multifractal analysis, revealing increased market efficiency and changing multifractal sources post-pandemic.

Contribution

It applies multifractal analysis to assess COVID-19's effects on China's crude oil futures, providing new insights into market efficiency and cross-correlations during the pandemic.

Findings

Market efficiency of SC increased after COVID-19 outbreak.

Cross-correlations between SC and other assets strengthened during the pandemic.

Sources of multifractality in SC changed since COVID-19 began.

Abstract

The ongoing COVID-19 shocked financial markets globally, including China's crude oil future market, which is the third most traded crude oil futures after WTI and Brent. As China's first crude oil futures accessible to foreign investors, the Shanghai crude oil futures (SC) have attracted significant interest since launch at the Shanghai International Energy Exchange. The impact of COVID-19 on the new crude oil futures is an important issue for investors and policy makers. Therefore this paper studies the short-term influence of COVID-19 pandemic on SC via multifractal analysis. We compare market efficiency of SC before and during the pandemic with the multifractal detrended fluctuation analysis and other commonly-used random walk tests. Then we generate shuffled and surrogate data to investigate the components of multifractal nature in SC. And we examine cross-correlations between SC returns and other financial assets returns as well as SC trading volume changes by the multifractal detrended cross-correlation analysis. The results show that market efficiency of SC and its cross-correlations with other assets increase significantly after the outbreak of COVID-19. Besides that, the sources of its multifractal nature have changed since the pandemic. The findings provide evidence for the short-term impacts of COVID-19 on SC. The results may have important implications for assets allocation, investment strategies and risk monitoring.