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Do Economic Conditions of U.S. States Predict the Realized Volatility of Oil-Price Returns? A Quantile Machine-Learning Approach

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Christian Pierdzioch

    (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany)

Abstract

Because the U.S. is a major player in the international oil market, it is interesting to study whether aggregate U.S. and state-level economic conditions can predict the subsequent realized volatility of oilprice returns. In order to address this research question, we frame our analysis in terms of variants of the popular heterogeneous autoregressive realized volatility (HAR-RV) model. For estimation of the models, we use the quantile-regression and quantile machine-learning (Lasso) estimators. Our estimation results shed light on the differential effects of economic conditions on the quantiles of the conditional distribution of realized volatility. Using weekly data for the period from April 1987 to December 2021, we document evidence of predictability at a biweekly and especially at a monthly horizon.

Suggested Citation

  • Rangan Gupta & Christian Pierdzioch, 2022. "Do Economic Conditions of U.S. States Predict the Realized Volatility of Oil-Price Returns? A Quantile Machine-Learning Approach," Working Papers 202216, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202216
    as

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    More about this item

    Keywords

    Oil price; Realized volatility; Economic conditions indexes; Quantile Lasso; Prediction models;
    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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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