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Geopolitical risk uncertainty and oil future volatility: Evidence from MIDAS models

Dexiang Mei, Feng Ma, Yin Liao and Lu Wang

Energy Economics, 2020, vol. 86, issue C

Abstract: Using a textual analysis based geopolitical risk (GPR) index, this paper exploits the effects of geopolitical risk uncertainty on oil futures price volatility within a mixed data sampling (MIDAS) modeling framework. With a variety of MIDAS specifications, our in-sample estimation results suggest that the short-term (e.g. one-day-ahead) oil realized volatility is positively associated with GPR uncertainty, and our out-of-sample forecasting exercise indicates that the GPR index is useful for improving short-term oil futures volatility prediction. In addition, we find that the categorical GPR index: GPR action related index (GPA), contributes more to the long-term oil volatility forecasting, compared with GPR threat related index (GPT).

Keywords: Oil futures; Realized volatility; Geopolitical risk uncertainty; MIDAS (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.eneco.2019.104624

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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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