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Forecasting volatility and spillovers in crude oil spot, forward and future markets

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Listed:
  • Chang, C-L.
  • McAleer, M.J.
  • Tansuchat, R.

Abstract

Crude oil price volatility has been analyzed extensively for organized spot, forward and futures markets for well over a decade, and is crucial for forecasting volatility and Value-at-Risk (VaR). There are four major benchmarks in the international oil market, namely West Texas Intermediate (USA), Brent (North Sea), Dubai/Oman (Middle East), and Tapis (Asia-Pacific), which are likely to be highly correlated. This paper analyses the volatility spillover effects across and within the four markets, using three multivariate GARCH models, namely the CCC, VARMA-GARCH and VARMA-AGARCH models. A rolling window approach is used to forecast the 1-day ahead conditional correlations. The paper presents evidence of volatility spillovers and asymmetric effects on the conditional variances for most pairs of series. In addition, the forecasted conditional correlations between pairs of crude oil returns have both positive and negative trends.

Suggested Citation

  • Chang, C-L. & McAleer, M.J. & Tansuchat, R., 2009. "Forecasting volatility and spillovers in crude oil spot, forward and future markets," Econometric Institute Research Papers EI 2009-12, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  • Handle: RePEc:ems:eureir:16107
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    References listed on IDEAS

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    Cited by:

    1. Chang, Chia-Lin & McAleer, Michael & Tansuchat, Roengchai, 2011. "Crude oil hedging strategies using dynamic multivariate GARCH," Energy Economics, Elsevier, vol. 33(5), pages 912-923, September.
    2. Lee, Chien-Chiang & Zeng, Jhih-Hong, 2011. "The impact of oil price shocks on stock market activities: Asymmetric effect with quantile regression," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(9), pages 1910-1920.

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    More about this item

    Keywords

    conditional correlations; crude oil spot prices; forward returns; futures returns; multivariate GARCH; spot returns; volatility spillovers;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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