Forecasting the Volatility of Crude Oil: The Role of Uncertainty and Spillovers

Rangan Gupta and Christian Pierdzioch

No 202135, Working Papers from University of Pretoria, Department of Economics

Abstract: We use an dataset for the group of G7 countries and China to study the out-of-sample predictive value of uncertainty and international spillovers for the realized variance of crude oil (West Texas Intermediate and Brent) over the sample period from 1996Q1 to 2020Q4. Using the Lasso estimator, we find evidence that uncertainty and international spillovers have predictive value for realized variance at an intermediate (two quarters) and a long (one year) forecasting horizon. This result holds also for upside (good) and downside (bad) variance, and irrespective of whether we use a recursive or a rolling estimation window. Our results have important implications for investors and policymakers.

Keywords: Uncertainty; Spillovers; Realized variance; Crude oil; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 D8 Q02 Q41 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2021-05
New Economics Papers: this item is included in nep-ure
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Journal Article: Forecasting the Volatility of Crude Oil: The Role of Uncertainty and Spillovers (2021)
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