Modelling the volatility of TOCOM energy futures: A regime switching realised volatility approach

Amir H. Alizadeh, Chih-Yueh Huang and Ian W. Marsh

Energy Economics, 2021, vol. 93, issue C

Abstract: This paper combines the Heterogeneous Autoregressive Realised Volatility (HAR-RV) model and the Markov Regime Switching (MRS) approach to estimate and forecast volatility of energy futures contracts traded at the Tokyo Commodity Exchange (TOCOM). The proposed MRS-HAR-RV model allows the dynamics of the realised volatility to change as market conditions change. The dataset consists of intraday prices for gasoline, kerosene and crude oil futures. Estimation results suggest that MRS-HAR-RV model can capture dynamics of price volatility of energy futures better than alternative models. However, out-of-sample forecast evaluation results show that MRS-HAR-RV can only produce better forecasts for more liquid contracts. Moreover, MRS-HAR-RV model seems to less over-predict and more under-predict the volatility compared to HAR-RV, HAR-RV-CJ, GARCH, and MRS-GARCH models.

Keywords: Regime-switch; TOCOM; Realised volatility; Petroleum futures (search for similar items in EconPapers)
JEL-codes: C32 G32 Q47 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:93:y:2021:i:c:s0140988319302063

DOI: 10.1016/j.eneco.2019.06.019

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