Can the return connectedness indices from grey energy to natural gas help to forecast the natural gas returns?

In this paper, we construct one-way return connectedness indices and net pairwise directional connectedness (NPDC) indices from the grey energy market to the natural gas market using the dynamic connectedness framework of Antonakakis et al. (2020) and attempt to investigate their ability to forecast natural gas returns. Both the in-sample estimation results and the out-of-sample evaluation results show that most of the return connectedness indices considered in this paper have significant predictive power for natural gas returns, and at most forecasting horizons, the predictive power of the return connectedness indices from grey energy to natural gas exceeds that of the grey energy returns themselves. The out-of-sample evaluation results further show that among all the return connectedness indices considered here, the return connectedness indices from the WTI crude oil market perform better in out-of-sample forecasting. Specifically, the one-way return connectedness index from WTI crude oil to natural gas performs better in short-term return forecasting, while the NPDC indices from WTI crude oil to natural gas perform better in long-term return forecasting.