Time-Varying Efficiency in Spot and Future Energy Markets and Precious Metals: An Econophysics Approach

This paper aims to empirically evaluate the time-varying informational efficiency of both spot and futures markets for energy commodities (Brent oil and natural gas) and precious metals (gold and silver). Design/Methodology/Approach The study employs the Shannon entropy measure to assess the daily closing prices of these markets, providing a dynamic measure of market efficiency over time. This allows for a comparative analysis of the efficiency of different markets. Findings The efficiency of energy and precious metals markets fluctuates over time, influenced by global events, economic conditions, and market-specific factors. The study confirms that market efficiency is not static but adapts over time, aligning with the Adaptive Market Hypothesis (AMH). This is evident in the dynamic behavior of markets such as gold, silver, natural gas, and Brent oil. Gold and Silver: Efficiency decreases during economic instability, with gold acting as a safe haven and silver being more sensitive to supply-demand changes. Natural Gas: Efficiency is highly influenced by weather conditions. Practical Implications Shannon entropy serves as a valuable tool for assessing market efficiency, offering insights that investors can use to adjust strategies during inefficient periods, such as opting for stable assets like gold in uncertain times. Additionally, understanding the impact of global events on market efficiency helps in building resilient portfolios. Policymakers can leverage these insights to craft regulations that enhance market stability, especially during economic uncertainty or extreme weather events.