Long memory and crude oil’s price predictability

This paper discusses the usefulness of the long term memory property in price prediction. In particular, the Hurst’s exponents related to a wide set of portfolios generated by three crude oils are estimated by using the detrended fluctuation analysis. To this aim, the daily empirical data on West Texas Intermediate, Brent crude oil and Dubai crude oil for a period of more than 10 years have been considered. It is shown that specific combinations are associated to persistence/antipersistence long-run behaviors, and this highlights the presence of statistical arbitrage opportunities. Such an outcome shows that long term memory can effectively serve as price predictor. This is a post-peer-review, pre-copyedit version of an article published in Annals of Operations Research. The final authenticated version is available online at: http://dx.doi.org/10.1007/s10479-019-03376-y