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Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models

Aldo Levy (), Mohamed Arouri (), Amine Lahiani and Duc Khuong Nguyen
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Aldo Levy: LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM]

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Abstract: This paper extends previous studies by investigating the relevance of structural breaks and long memory in modeling and forecasting the conditional volatility of oil spot and futures prices using a variety of GARCH-type models. Our results can be summarized as follows. First, we provide evidence of parameter instability in five out of nine GARCH-based conditional volatility processes for energy prices. Second, long memory is effectively present in all the series considered and a FIGARCH model seems to better fit the data, but the degree of volatility persistence diminishes significantly after adjusting for structural breaks. Finally, the out-of-sample analysis shows that volatility models accommodating instability and long memory characteristics of the data provide the best volatility forecasts for most cases.

Keywords: Oil markets; Volatility forecasting; Long memory; Structural breaks; GARCH-class models (search for similar items in EconPapers)
Date: 2012
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01279906
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Published in Energy Economics, Elsevier, 2012, 34 (1), pp.283-293

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Related works:
Journal Article: Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models (2012) Downloads
Working Paper: Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models (2010) Downloads
Working Paper: Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models (2010) Downloads
Working Paper: Forecasting the Conditional Volatility of Oil Spot andFutures Prices with Structural Breaksand Long Memory Models (2010) Downloads
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