Forecasting the term structure of volatility of crude oil price changes

Ercan Balaban and Shan Lu

Economics Letters, 2016, vol. 141, issue C, 116-118

Abstract: This is a pioneering effort to test the comparative performance of two competing models for out-of-sample forecasting the term structure of volatility of crude oil price changes employing both symmetric and asymmetric evaluation criteria. Under symmetric error statistics, our empirical model using the estimated growth factor of volatility through time is overall superior, and it beats in most cases the benchmark model of the square-root-of-time (T) for holding periods between one and 250 days. Under asymmetric error statistics, if over-prediction (under-prediction) of volatility is undesirable, the empirical (benchmark) model is consistently superior. Relative performance of the empirical model is much higher for holding periods up to fifty days.

Keywords: Volatility term structure; Square-root-of-time rule; Forecasting; Forecast evaluation; Oil prices (search for similar items in EconPapers)
JEL-codes: C53 G12 G17 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:141:y:2016:i:c:p:116-118

DOI: 10.1016/j.econlet.2016.02.015

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