Forecasting the return volatility of energy prices: A GARCH MIDAS approach

Afees Salisu and Raymond Swaray ()
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Raymond Swaray: Economics Subject Group, University of Hull Business, University of Hull, Cottingham Road, UK

No 29, Working Papers from Centre for Econometric and Allied Research, University of Ibadan

Abstract: This paper offers an extension to the literature on energy prices by forecasting the return volatility of these prices using the GARCH-MIDAS approach. In addition to the realized volatility, it also evaluates the predictability of relevant macroeconomic information such as industrial growth and consumer prices (with and without energy components) in the predictive model for the return volatility of energy prices. The analyses are distinctly conducted for full-sample, pre-GFC and post-GFC periods. On average, the findings support the inclusion of these macroeconomic information particularly output growth and realized volatility as they yield good in-sample and outof- sample predictability results for the return volatility. However, the paper finds contrasting evidence between the pre-GFC and post-GFC periods.

Keywords: GARCH-MIDAS; energy prices; return volatility; realized volatility, industrial production, inflation (search for similar items in EconPapers)
JEL-codes: C53 Q47 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-09
New Economics Papers: this item is included in nep-ene and nep-for
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Related works:
Chapter: Forecasting the Return Volatility of Energy Prices: A GARCH-MIDAS Approach (2020)
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