The nexus between the oil price and its volatility in a stochastic volatility in mean model with time-varying parameters

Mehmet Balcilar and Zeynel Ozdemir ()

No 15-33, Working Papers from Eastern Mediterranean University, Department of Economics

Abstract: This study investigates the dynamic nexus between oil price and its volatility for oil spot and futures markets by means of stochastic volatility in mean model with time-varying parameters in the conditional mean. The study finds substantial time-variation about the impact of oil price volatility on oil price return in both spot and 1-month to 10-month futures markets. The oil price return volatility has positive impact on oil price return series over the sample period form the mid-1980s to 2017s except for four very short time periods, which correspond to collapse of OPEC in 1986, invasion of Kuwait in 1990/91, Asian crisis in 1997/2000 and the Global Financial Crisis in 2008. While the oil price return volatility has positive impact on oil prices, it has limited negative impact on oil prices during periods corresponding to these historical events. Moreover, the findings from this study point out to the existence of a negative and small effect of the lagged oil return series on its volatility for both the spot and futures markets.

Keywords: Oil price; Oil price uncertainty; Spot and futures markets; Nonlinearity; Stochastic volatility; State–space. (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2017
New Economics Papers: this item is included in nep-ene, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://repec.economics.emu.edu.tr/RePEc/emu/wpaper/15-33.pdf First version, 2017 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:emu:wpaper:15-33.pdf

Access Statistics for this paper

More papers in Working Papers from Eastern Mediterranean University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mehmet Balcilar ().