Multiscale lead-lag relationships in oil and refined product return dynamics: A symbolic wavelet transfer entropy approach

This study sheds new light on the lead-lag relationships between crude oil and refined product return dynamics in the time and the frequency space. For this purpose, a novel methodology is introduced. Based on information theoretic measures and continuous wavelet transform, symbolic wavelet transfer entropy detects non-linear lead-lag relationships in the sense of Granger causality across multiple scales. Between petroleum prices, we find bidirectional causalities across the investment horizons. Further evidence is provided for asymmetric price transmission amongst crude oil and the refined products with respect to increasing and decreasing petroleum prices. Across the analyses, we observe that product price dynamics, economic crises, geopolitical risks, natural catastrophes and other market perturbations affect the price discovery in heterogenous investment horizons. (C) 2020 Elsevier B.V. All rights reserved.