Measuring the Brazilian ethanol and gasoline market efficiency using DFA-Hurst and fractal dimension

• Published in: Energy economics Vol. 85; p. 104614
• Main Authors: David, S.A., Inácio, C.M.C., Quintino, D.D., Machado, J.A.T.
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier B.V 01-01-2020; Elsevier Science Ltd
• Subjects: Biofuels; Commodities; Efficiency; Efficiency index; Efficient markets; Emotional intelligence; Energy; Energy economics; Energy policy; Ethanol; Fractal dimension; Fractal geometry; Fractals; Fractional modelling; Fuel prices policy; Gasoline; Gasoline prices; Impeachment; Indexes; Markets; Natural gas; Petroleum; Policy making; Political change; Prices; Pricing; Public policy; Windows; Windows (intervals); Brazil; Energy; Fractal dimension; C02; Fuel prices policy; G14; Q40; Fractional modelling
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2019.104614

The ethanol and petroleum represent important energy commodities. Brazil is one of the world's largest producers of ethanol and became one of the ten largest global oil explorers in 2018. This paper proposes the Detrended Fluctuation Analysis (DFA), Hurst exponent (H) and fractal dimension (D) to investigate the dynamic behavior of ethanol and gasoline prices series in Brazil. Furthermore, a new market efficiency measure, namely the Efficiency Index (EI), is also proposed. Some on-going change toward a more efficient market in the follow-up of an institutional political change is analyzed. The data series are obtained from the National Agency of Petroleum and the Natural Gas and Biofuels (ANP). Weekly spot prices are used for time windows covering two periods. The first period (P1) precedes the Brazilian presidential impeachment occurred in 2016 and includes data from January/2011 to December/2015. The second (P2) addresses the period from July/2016 to July/2018, covering the post-impeachment scenario, with new government policies in the energy sector. The results indicate a subtle path toward market efficiency for the ethanol and a clear moving toward better efficiency for the gasoline market after changes in the fuel policy of Brazil. Moreover, the H and D indices prove to be useful tools for tackling the price dynamics of the fuel market, and to build the new measure EI.
•Brazilian ethanol and gasoline market efficiency are investigated.•Two periods, namely, pre- and post-Brazilian presidential impeachment are considered.•The DFA, Hurst exponent (H) and fractal dimension (D) are adopted tools in this work.•The H and D indices prove to be useful to build a measure of market efficiency index.•Results indicate better market efficiency after changes in fuel prices policy in Brazil.