Industry Index Volatility Spillovers and Forecasting from Crude Oil Prices Based on the MS-HAR-TVP Model

Haoqing Yu ()
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Haoqing Yu: School of Professional Studies, Columbia University, New York, NY 10027, USA

Mathematics, 2025, vol. 13, issue 22, 1-27

Abstract: This paper investigates the volatility spillover effects from the crude oil market to domestic stock markets using high-frequency data. We propose an enhanced methodology, the MS-HAR-TVP model, which extends the standard HAR framework. Our model decomposes crude oil price impacts on domestic financial markets into trend and jump volatility spillover components via the TVP framework, while incorporating a Markov switching mechanism to capture regime changes in volatility dynamics. This paper selects the CSI coal index and the CSI new energy index as the representatives of the domestic energy stock market, uses the rolling window method and the MCS test method to evaluate the predictive performance of the model, and compares it with other commonly used models. The empirical results show that (1) the decomposed high-frequency volatility spillover has obvious volatility clustering and asymmetry and the trend and jump spillover have significant improvement in the predictive ability of future volatility; (2) the short-term trend of crude oil is opposite to the trend of the new energy index, but the same as the short-term trend of the coal index, indicating that the impact of crude oil prices on different energy stock markets is different; and (3) the MS-HAR-TVP model and MS-HAR-TVP-J/TCJ model combined with the crude oil volatility spillover have significantly higher in-sample and out-of-sample prediction accuracy than other models in high volatility periods, indicating that the model proposed in this paper can better characterize and predict the volatility characteristics of the domestic energy stock market.

Keywords: volatility forecast; volatility spillover effect; TVP-VAR; MS-HAR (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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