A Fear Index to Predict Oil Futures Returns

Julien Chevallier and Benoît Sévi

No 156489, Energy: Resources and Markets from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This paper evaluates the predictability of WTI light sweet crude oil futures by using the variance risk premium, i.e. the difference between model-free measures of implied and realized volatilities. Additional regressors known for their ability to explain crude oil futures prices are also considered, capturing macroeconomic, financial and oil-specific influences. The results indicate that the explanatory power of the (negative) variance risk premium on oil excess returns is particularly strong (up to 25% for the adjusted Rsquared across our regressions). It complements other financial (e.g. default spread) and oil-specific (e.g. US oil stocks) factors highlighted in previous literature.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 26
Date: 2013-06
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Citations: View citations in EconPapers (7)

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https://ageconsearch.umn.edu/record/156489/files/NDL2013-062.pdf (application/pdf)

Related works:
Working Paper: A fear index to predict oil futures returns (2014)
Working Paper: A fear index to predict oil futures returns (2014)
Working Paper: A Fear Index to Predict Oil Futures Returns (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemer:156489

DOI: 10.22004/ag.econ.156489

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