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Forecasting the realized volatility of the oil futures market: A regime switching approach

Feng Ma, M.I.M. Wahab, Dengshi Huang and Weiju Xu

Energy Economics, 2017, vol. 67, issue C, 136-145

Abstract: Considering nonlinear and highly persistent dynamics of realized volatility, we introduce Markov regime switching models to the Heterogeneous Autoregressive model of the Realized Volatility (HAR-RV) models to forecast the realized volatility of the crude oil futures market. In-sample results demonstrate that the high volatility regime is short-lived. Out-of-sample results suggest that HAR-RV models with regime switching increase the forecasting ability significantly than those without regime switching. Moreover, these findings are robust for different actual volatility benchmarks, forecasting windows, and model settings.

Keywords: Volatility forecasting; HAR-RV-type models; Regime switching approach; Forecasting evaluation (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 E27 E37 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
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DOI: 10.1016/j.eneco.2017.08.004

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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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