Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment

Rangan Gupta and Christian Pierdzioch

No 202175, Working Papers from University of Pretoria, Department of Economics

Abstract: We extend the widely-studied Heterogeneous Autoregressive Realized Volatility (HAR-RV) model to examine the out-of-sample forecasting value of climate-risk factors for the realized volatility of movements of the prices of crude oil, heating oil, and natural gas. We find that climate-risk factors contribute to out-of-sample forecasting performance mainly at a monthly and, in some cases, also at a weekly forecast horizon. We demonstrate that our main finding is robust to various modifications of our forecasting experiment, and to using three different popular shrinkage estimators to estimate the extended HAR-RV model. We also study longer forecast horizons of up to three months, and we account for the possibility that policymakers and forecasters may have an asymmetric loss function.

Keywords: Climate Risks; Realized Volatility; Energy Prices; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 Q02 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2021-10
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Citations: View citations in EconPapers (14)

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Journal Article: Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment (2021)
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