Forecasting the oil prices: What is the role of skewness risk?

Libo Yin () and Yang Wang

Physica A: Statistical Mechanics and its Applications, 2019, vol. 534, issue C

Abstract: Crude oil is crucial to the operation and economic well-being of the modern society. Huge changes of crude oil price always cause panics to the global economy. This paper aims to investigate the predictability of the skewness risk of oil to directly forecast oil prices. We find that the skewness risk of oil does exhibit statistically and economically significant in-sample and out-of-sample forecasting power under OLS regressions. Moreover, the strength of the predictive evidence is substantial during recessions, and robust when controlling for a set of variables. Furthermore, the skewness risk of oil reveals substantial economic value for investors, in terms of superior oil risk premium forecasts and sizable utility gains.

Keywords: Oil price predictability; Skewness risk; Out-of-sample forecasts; Business cycle (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:534:y:2019:i:c:s037843711930175x

DOI: 10.1016/j.physa.2019.02.022

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