A study on the impact of different types of economic policy uncertainty in the United States on volatility and correlation in the global crude oil market

This research utilizes the GARCH-MIDAS-X (GM) and DCC-MIDAS-X (DM) models, including their asymmetric extensions (AGM and ADM), to conduct a comparative analysis of how various forms of U.S. economic policy uncertainty (EPU) affect the volatilities of futures and spot markets, as well as the correlations among three crude oil markets. The findings reveal the following: (1) Among the different types of EPU, only trade policy and government spending policy uncertainties significantly influence the volatilities of futures and spot returns across all petroleum markets. Trade policy uncertainty exerts a stronger negative effect, while government spending policy uncertainty has a milder positive impact. Furthermore, within the same market, there is heterogeneity in the response of futures and spot prices to different types of EPU. The WTI futures market is influenced by fewer types of EPU indices compared to the WTI spot. (2) Government spending, fiscal, regulation, and health care policy uncertainties primarily drive abnormal negative effects on crude oil return volatilities through positive shocks. Conversely, trade policy uncertainty tends to produce positive effects via negative shocks. (3) Except for government spending and financial regulation policy uncertainties, other forms of EPU significantly enhance the correlations between futures and spot prices in Brent and Oman. Additionally, most EPU indices display asymmetric effects on the correlations between futures and spot returns in WTI and Brent, though these asymmetries are less prominent in the Oman market.