Forecasting volatility and spillovers in crude oil spot, forward and future markets

Chia-Lin Chang (), Michael McAleer and R. Tansuchat
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R. Tansuchat: Erasmus Econometric Institute

No EI 2009-12 Revision_Date: 2009-11-26, Econometric Institute Report from Erasmus University Rotterdam, Econometric Institute

Abstract: Crude oil price volatility has been analyzed extensively for organized spot, forward and futures markets for well over a decade, and is crucial for forecasting volatility and Value-at-Risk (VaR). There are four major benchmarks in the international oil market, namely West Texas Intermediate (USA), Brent (North Sea), Dubai/Oman (Middle East), and Tapis (Asia-Pacific), which are likely to be highly correlated. This paper analyses the volatility spillover effects across and within the four markets, using three multivariate GARCH models, namely the CCC, VARMA-GARCH and VARMA-AGARCH models. A rolling window approach is used to forecast the 1-day ahead conditional correlations. The paper presents evidence of volatility spillovers and asymmetric effects on the conditional variances for most pairs of series. In addition, the forecasted conditional correlations between pairs of crude oil returns have both positive and negative trends.

Keywords: volatility spillovers; multivariate GARCH; conditional correlations; crude oil spot prices; spot returns; forward returns; futures returns (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-fmk and nep-for
Date: 2009-06-16

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Related works:
Working Paper: Forecasting Volatility and Spillovers in Crude Oil Spot, Forward and Futures Markets (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:eureir:1765016107

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