 Impact of financial instability on international crude oil volatility: New sight from a regime-switching frameworkYanran Hong, Lu Wang, Chao Liang and Muhammad Umar Resources Policy, 2022, vol. 77, issue C Abstract: In this paper, we investigate the dynamic impact of financial stress on crude oil volatility by employing a time-varying transition probabilities Markov regime-switching GARCH model (TVTP-MS-GARCH). Different from the existing work, we mainly consider the possible nonlinearity and regime changes among crude oil volatility and financial stress. First, the in-sample results strongly support the existence of the potential regime switches among the two financial fundamentals. Second, compared with the symmetric TVTP-MS-GARCH model, the model based on an asymmetric framework shows a better predictive performance in the out-of-sample findings. It implies that the dynamic impact of financial stress on crude oil exhibits an asymmetric feature. Finally, our findings are robust to several alternative checks, including other lags of financial stress and estimated window size. Thus, it is necessary to focus on the dynamic changes of financial stress for accurately predicting crude oil volatility. Keywords: Crude oil volatility; Financial stress; Time-varying transition probability; Markov-switching GARCH; Forecasting efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:77:y:2022:i:c:s0301420722001155 DOI: 10.1016/j.resourpol.2022.102667 Access Statistics for this article Resources Policy is currently edited by R. G. Eggert More articles in Resources Policy from Elsevier |
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