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Long Memory in Oil and Refined Products Markets

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  • Kyongwook Choi
  • Shawkat Hammoudeh

Abstract

We test for the presence of long memory in daily oil and refined products prices absolute return, squared return and conditional volatility, using several parametric and semiparametric methods. This study finds strong evidence of long memory (LM) in the daily absolute and squared spot and futures returns for crude oil, gasoline and heating oil but at different degrees. The FIGARCH model also demonstrates strong evidence of LM for volatility for most of oil and products prices returns, with also different resilience levels. Structural breaks have only the partial effects of slightly reducing persistence for just absolute and squared returns. Examining the forecasting behavior of two competing models, the less parsimonious ARFIMA which satisfies the LM property, and the parsimonious ARMA with short-term processes, the ARFIMA model provides significantly better out-of-sample forecasts at all forecasting horizons for all three petroleum types.

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 30 (2009)
Issue (Month): Number 2 ()
Pages: 97-116

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Handle: RePEc:aen:journl:2009v30-02-a05

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Cited by:
  1. Walid Chkili & Shawkat Hammoudeh & Duc Khuong Nguyen, 2014. "Volatility forecasting and risk management for commodity markets in the presence of asymmetry and long memory," Working Papers 2014-325, Department of Research, Ipag Business School.
  2. Mohamed El Hedi Arouri & Duc Khuong Nguyen & Amine Lahiani, 2010. "Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models," Working Papers hal-00507831, HAL.
  3. Delavari, Majid & Gandali Alikhani, Nadiya, 2012. "The Effect of Crude Oil Price on the Methanol price," MPRA Paper 49727, University Library of Munich, Germany.
  4. repec:ipg:wpaper:9 is not listed on IDEAS
  5. repec:ipg:wpaper:201409 is not listed on IDEAS
  6. Arouri, Mohamed El Hedi & Hammoudeh, Shawkat & Lahiani, Amine & Nguyen, Duc Khuong, 2012. "Long memory and structural breaks in modeling the return and volatility dynamics of precious metals," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 207-218.
  7. Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2011. "Structural changes and volatility transmission in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4317-4324.
  8. Komijani, Akbar & Naderi, Esmaeil & Gandali Alikhani, Nadiya, 2013. "A Hybrid Approach for Forecasting of Oil Prices Volatility," MPRA Paper 44654, University Library of Munich, Germany.
  9. Delavari, Majid & Gandali Alikhani, Nadiya & Naderi, Esmaeil, 2013. "Does long memory matter in forecasting oil price volatility?," MPRA Paper 46356, University Library of Munich, Germany.
  10. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "How do OPEC news and structural breaks impact returns and volatility in crude oil markets? Further evidence from a long memory process," Energy Economics, Elsevier, vol. 42(C), pages 343-354.
  11. Naccache, Théo, 2011. "Oil price cycles and wavelets," Energy Economics, Elsevier, vol. 33(2), pages 338-352, March.
  12. Walid Chkili & Shawkat Hammoudeh & Duc Khuong Nguyen, 2013. "Long memory and asymmetry in the volatility of commodity markets and Basel Accord: choosing between models," Working Papers 2013-009, Department of Research, Ipag Business School.

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