A Fear Index to Predict Oil Futures Returns

Julien Chevallier and Benoît Sévi

No 2013.62, Working Papers from Fondazione Eni Enrico Mattei

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: Oil Futures; Variance Risk Premium; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 G17 Q47 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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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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