Geopolitical risk and oil price volatility: Evidence from Markov-switching model

Lihua Qian, Qing Zeng and Tao Li

International Review of Economics & Finance, 2022, vol. 81, issue C, 29-38

Abstract: This study explores the predictability of geopolitical risk (GPR) on oil market volatility using autoregressive Markov-regime switching model, and obtains several remarkable findings. First, in-sample results show that high GPR can lead to high fluctuations in oil market. Considering different market states, GPR has different effects. Second, out-of-sample results indicate that GPR has useful information to forecast oil market volatility. Compared to expansions, GPR has a more powerful ability for forecasting oil price volatility during recessions, which are robust to different robustness tests. Third, GPR is effective in long-term forecast horizons. Moreover, geopolitical risk threats and acts are helpful in forecasting oil price volatility, especially geopolitical risk threats.

Keywords: Volatility forecasting; Oil market; Geopolitical risk; Regime switching; Out-of-sample statistic test (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:81:y:2022:i:c:p:29-38

DOI: 10.1016/j.iref.2022.05.002

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