Challenges for volatility forecasts of US fossil energy spot markets during the COVID-19 crisis

Zepei Li and Haizhen Huang

International Review of Economics & Finance, 2023, vol. 86, issue C, 31-45

Abstract: The outbreak of the COVID-19 pandemic led to a slowdown in the world's energy trade and changes in the use of energy resources. Meanwhile, global conditions are complex and can affect fossil energy spot markets, including crude oil, gasoline, heating oil, and natural gas. In this paper, we conduct comparative research to explore the impact of global conditions on fossil energy spot markets during the COVID-19 crisis based on the GARCH-MIDAS framework. We employ a 2010–2022 sample, which we cut off to investigate the differences before and after COVID-19. In-sample estimation shows that all global indicators are significant for forecasting the volatilities of these fossil energy spot prices. Out-sample forecasts reveal that GEPU and GECON outperform GPR and WIP for forecasting these four markets during the pre-COVID-19 period. After the crisis broke out, these global indicators can provide different forecasting information. Hence, this paper can be helpful for decision-makers to formulate and adjust pertinent policies and investments in the case of extreme emergencies in the future.

Keywords: Fossil energy; COVID-19; Volatility forecasting; Global indicators; GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 G11 G12 G17 Q43 Q47 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:86:y:2023:i:c:p:31-45

DOI: 10.1016/j.iref.2023.02.004

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