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Forecasting the Return Volatility of Energy Prices: A GARCH-MIDAS Approach

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations

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  • Afees A. Salisu
  • Raymond Swaray

Abstract

This chapter offers an extension to the literature on energy prices by forecasting the return volatility of these prices using the GARCH-MIDAS approach. In addition to the realized volatility, it also evaluates the predictability of relevant macroeconomic information such as industrial growth and consumer prices (with and without energy components) in the predictive model for the return volatility of energy prices. The analyses are distinctly conducted for full sample, pre-GFC and post-GFC periods. On average, the findings support the inclusion of these macroeconomic information, particularly output growth and realized volatility, as they yield good in-sample and out-of-sample predictability results for the return volatility. However, the study finds contrasting evidence between the pre-GFC and post-GFC periods.

Suggested Citation

  • Afees A. Salisu & Raymond Swaray, 2020. "Forecasting the Return Volatility of Energy Prices: A GARCH-MIDAS Approach," World Scientific Book Chapters, in: Stéphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 3, pages 47-71, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813278387_0003
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    More about this item

    Keywords

    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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