The asymmetric effect of G7 stock market volatility on predicting oil price volatility: Evidence from quantile autoregression model

Feipeng Zhang, Hongfu Gao and Di Yuan

Journal of Commodity Markets, 2024, vol. 35, issue C

Abstract: This paper investigates the asymmetric effect of G7 stock market volatility on predicting oil price volatility under different oil market conditions by using the quantile autoregression model. Both in- and out-of-sample results demonstrate the prediction superiority and effectiveness of the quantile autoregression model. The US and Canada's stock markets exhibit the strongest predictive ability across the entire distribution, while the UK demonstrates strong predictive power specifically during periods of high oil price volatility. Japan, Germany, France, and Italy as oil importers can predict low and median oil volatility. The strong predictability of G7 stock volatility may be attributable to their significant impact on the business cycle and investor sentiment. This asymmetric prediction ability arises not only from the average volatility shocks at various quantiles but also from the bad and good stock volatility at different quantiles. Further research suggests that bad stock volatility appears to be more predictable than good stock volatility, especially in high oil price fluctuations. Furthermore, the superiority and effectiveness of the quantile autoregression model in predicting oil volatility are proven to be applicable to emerging markets. This study may provide useful insights for policymakers, businesses, and investors to improve crude oil risk prediction and risk management under different market conditions.

Keywords: Oil volatility forecasting; Quantile autoregression; Stock volatility (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:35:y:2024:i:c:s240585132400028x

DOI: 10.1016/j.jcomm.2024.100409

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