Modeling and predicting oil VIX: Internet search volume versus traditional mariables

I. Campos, G. Cortazar and T. Reyes

Energy Economics, 2017, vol. 66, issue C, 194-204

Abstract: As a key variable in option pricing models and monetary policy decisions, volatility is an important factor in valuing and hedging investments. This paper models and predicts the CBOE Crude Oil Volatility Index using Heterogeneous Autoregressive (HAR) models that include traditional macro-finance variables as well as abnormal search volume from Google (ASVI). We find that a pure HAR model fits oil volatility remarkably well. When adding ASVI, we discover that this variable has a significant and positive relationship with oil volatility. This relationship remains statistically significant when traditional financial and macroeconomic variables are accounted for; therefore, ASVI is not only a good proxy for traditional macro-finance variables, but also carries additional information. More importantly, out-of-sample predictions show that ASVI has high economic value, allowing traders of volatility-exposed portfolios to significantly increase returns.

Keywords: Oil VIX; Internet search volume; Implied volatility; Heterogeneous autoregressive model (search for similar items in EconPapers)
JEL-codes: C22 C53 G12 G17 Q41 Q47 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988317302037
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:eneeco:v:66:y:2017:i:c:p:194-204

DOI: 10.1016/j.eneco.2017.06.009

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().