Estimating Volatility Persistence in Oil Prices Under Structural Breaks

Bradley Ewing and Farooq Malik

The Financial Review, 2010, vol. 45, issue 4, 1011-1023

Abstract: Policy makers and financial market participants are interested in knowing how shocks affect the volatility of oil prices over time. We accurately compute the volatility persistence by incorporating endogenously determined structural breaks into a GARCH model. Contrary to previous findings, we find that oil shocks dissipate very quickly but have a strong initial impact. Understanding this behavior is not only important for derivative valuation and hedging decisions but for broader financial markets and the overall economy, for which there are significant consequences.

Date: 2010
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https://doi.org/10.1111/j.1540-6288.2010.00283.x

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