Harnessing jump component for crude oil volatility forecasting in the presence of extreme shocks
Feng Ma,
Yin Liao,
Yaojie Zhang and
Yang Cao
Journal of Empirical Finance, 2019, vol. 52, issue C, 40-55
Abstract:
Oil markets are subject to extreme shocks (e.g. Iraq’s invasion of Kuwait), causing the oil market price exhibits extreme movements, called jumps (or spikes). These jumps pose challenges on oil market volatility forecasting using conventional volatility dynamic models (e.g. GARCH model) This paper characterizes dynamics of jumps in oil market price using high frequency data from three perspectives: the probability (or intensity) of jump occurrence, the sign (e.g. positive or negative) of jumps, and the concurrence with stock market jumps. And then, the paper exploits predictive ability of these jump-related information for oil market volatility forecasting under the mixed data sampling (MIDAS) modeling framework. Our empirical results show that augmenting standard MIDAS model using the three jump-related information significantly improves the accuracy of oil market volatility forecasting. The jump intensity and negative jump size are particularly useful for predicting future oil volatility. These results are widely consistent across a variety of robustness tests. This work provides new insights on how to forecast oil market volatility in the presence of extreme shocks.
Keywords: Oil market; Volatility forecasting; Jump intensity; Signed jumps; Cojumps (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (113)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927539819300040
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:52:y:2019:i:c:p:40-55
DOI: 10.1016/j.jempfin.2019.01.004
Access Statistics for this article
Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff
More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).