 Oil volatility risk and stock market volatility predictability: Evidence from G7 countriesJiabao Feng, Yudong Wang and Libo Yin () Energy Economics, 2017, vol. 68, issue C, 240-254 Abstract: Academic research relies extensively on stock market information to forecast oil volatility, with relatively little attention paid to the reverse evidence. Our paper fills this gap by investigating the predictive ability of oil volatility risk to forecast stock market volatility. Using oil volatility risk premium (oil VRP) as the predictor, we find that oil VRP does exhibit statistically and economically significant in-sample and out-of-sample forecasting power for G7 countries, even controlling for some popular macroeconomic variables. These findings are robust when using alternative proxies for volatilities of stock and oil. Furthermore, the strength of the predictive evidence is substantial during relatively high and low level of stock market, while is substantially higher for recessions vis-á-vis expansions. Oil VRP can also contains additional information for predicting a series of macroeconomic variables, which serves as an available explanation for its forecasting ability. Keywords: Stock realized volatility; Oil volatility risk premium; Predictive regression; Out-of-sample forecast; Economic significance (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:eneeco:v:68:y:2017:i:c:p:240-254 DOI: 10.1016/j.eneco.2017.09.023 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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