Predicting volatility in natural gas under a cloud of uncertainties

Juan Chen, Zuoping Xiao, Jiancheng Bai and Hongling Guo

Resources Policy, 2023, vol. 82, issue C

Abstract: The COVID-19 pandemic has triggered an economic crisis and the ensuing global uncertainty. The current Russian-Ukrainian conflict has escalated tensions in various regions and increased various uncertainties in the financial and economic system. These uncertainties have had a significant impact on the development of the natural gas market during the current critical period of carbon neutrality and energy transition. This paper explores the impact of various uncertainties on price volatility in the U.S. natural gas futures market using the GARCH-MIDAS model. We considered eleven types of uncertainties, including four US economic policy uncertainties, four global uncertainty indicators, and oil supply-demand uncertainty closely related to the natural gas market. The in-sample empirical results find that various uncertainties can impact the natural gas market. However, through out-of-sample testing, we find that economic policy uncertainty has more predictive power than other indicators in predicting natural gas price fluctuations. Interestingly, oil supply-demand uncertainty surpasses global indicators and can provide forecasting information for natural gas markets. Therefore, in the current context of high uncertainty, our research may offer better decision-making opinions for market participants.

Keywords: Uncertainty; Forecast; Natural gas; GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C22 C58 G11 G12 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:82:y:2023:i:c:s0301420723001447

DOI: 10.1016/j.resourpol.2023.103436

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