 Volatility forecasting of crude oil market: Can the regime switching GARCH model beat the single-regime GARCH models?Yue-Jun Zhang (), Ting Yao, Ling-Yun He and Ronald Ripple International Review of Economics & Finance, 2019, vol. 59, issue C, 302-317 Abstract: GARCH-type models are frequently used to forecast crude oil price volatility, and whether we should consider multiple regimes for the GARCH-type models is of great significance for the forecasting work but does not have a final conclusion yet. To that end, this paper estimates and forecasts crude oil price volatility using three single-regime GARCH (i.e., GARCH, GJR-GARCH and EGARCH) and two regime-switching GARCH (i.e., MMGARCH and MRS-GARCH) models. Furthermore, the Model Confidence Set (MCS) procedure is employed to evaluate the forecasting performance. The in-sample results show that the MRS-GARCH model provides higher estimation accuracy in weekly data. However, the out-of-sample results show the limited significance of considering the regime switching. Overall, our results indicate that the incorporation of regime switching does not perform significantly better than the single-regime GARCH models. The findings are proved to be robust to both daily and weekly data for WTI and Brent over different time horizons. Keywords: Crude oil market; Volatility forecasting; GARCH; Regime switching; MCS (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:59:y:2019:i:c:p:302-317 DOI: 10.1016/j.iref.2018.09.006 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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