Forecasting energy market volatility using GARCH models: Can multivariate models beat univariate models?

Yudong Wang and Chongfeng Wu

Energy Economics, 2012, vol. 34, issue 6, 2167-2181

Abstract: In this paper, we forecast energy market volatility using both univariate and multivariate GARCH-class models. First, we forecast volatilities of individual assets and find that multivariate models display better performance than univariate models. Second, we forecast crack spread volatility and contrast the performance of multivariate models for two underlyings, with the alternative of univariate ones for crack spreads directly. Our evidence shows that univariate models allowing for asymmetric effects display the greatest accuracy. We also discuss the hedging strategy based on multivariate models and its implications for market participants.

Keywords: Energy markets; Volatility; Univariate GARCH; Multivariate GARCH; Crack spread (search for similar items in EconPapers)
JEL-codes: C32 C52 E30 Q40 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:6:p:2167-2181

DOI: 10.1016/j.eneco.2012.03.010

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