On the Volatility of WTI Crude Oil Prices: A Time-Varying Approach with Stochastic Volatility

Thai-Ha Le, Sabri Boubaker, M.T. Bui and Donghyun Park

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Abstract: This study investigates the impacts of crude oil-market-specific fundamental factors and financial indicators on the realized volatility of West Texas Intermediate (WTI) crude oil price. A time-varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV) is applied to weekly data series spanning January 2008 to October 2021. It is found that the WTI oil price volatility responds positively to a shock in oil production, oil inventories, the US dollar index, and VIX but negatively to a shock in the US economic activity. The response to the EPU index was initially positive and then turned slightly negative before fading away. The VIX index has the most significant effect. Furthermore, the time-varying nature of the response of the WTI realized oil price volatility is evident. Extreme effects materialize during economic recessions and crises, especially during the COVID-19 pandemic. The findings can improve our understanding of the time-varying nature and determinants of WTI oil price volatility. \textcopyright 2022

Keywords: Costs; COVID-19; COVID-19 pandemic; crude oil; Crude oil; Crude oil prices; currency; economic activity; Economics; inventory; Oil price volatility; oil production; oil supply; Parameter vectors; price dynamics; Realized crude oil price volatility; Regression analysis; Stochastic models; Stochastic systems; Stochastic volatility; stochasticity; Time varying control systems; Time varying parameter; Time-varying parameter vector autoregression model with stochastic volatility; Time-varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV); United States; Value engineering; vector autoregression; Vector autoregression models; VIX; West texas intermediate; West Texas intermediate (WTI); West texas intermediates (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

Published in Energy Economics, 2023, 117, ⟨10.1016/j.eneco.2022.106474⟩

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Journal Article: On the volatility of WTI crude oil prices: A time-varying approach with stochastic volatility (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04433059

DOI: 10.1016/j.eneco.2022.106474

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