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Macro determinants of volatility and volatility spillover in energy markets

Berna Karali and Octavio Ramirez

Energy Economics, 2014, vol. 46, issue C, 413-421

Abstract: We analyze the time-varying volatility and spillover effects in crude oil, heating oil, and natural gas futures markets by incorporating changes in important macroeconomic variables and major political and weather-related events into the conditional variance equations. We allow asymmetric responses to random disturbances in each market as well as to good and bad economic news related to the overall economy. Results show the presence of asymmetric effects in both random disturbances and macroeconomic variables. A bidirectional volatility spillover effect is found between natural gas and crude oil and between the natural gas and heating oil markets. Crude oil volatility is found to increase following major political, financial, and natural events. Seasonality and day-of-the-week effects are found in the crude oil and heating oil markets.

Keywords: Asymmetric shocks; Energy markets; GARCH; Oil; Spillover effects; Volatility (search for similar items in EconPapers)
JEL-codes: C32 D8 D82 G14 Q41 Q43 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.eneco.2014.06.004

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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