the forecasting power of epu for crude oil return volatility

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ID: 143945
2019
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Abstract
Economic policy uncertainty (EPU) has important implications for crude oil market. To explore the implications, this paper investigates the impact of EPU on the crude oil return volatility and which EPU index has the most forecasting power in crude oil market. To this end, we employ the GARCH-MIDAS model which can incorporate lower frequency EPU index variable with higher frequency crude oil return variable effectively. We find that EPU has a positive and significant impact on the crude oil return volatility, but the effect is short-lived and the decay period is about one year. Particularly, our results show that the US EPU index has the best forecasting power for crude oil return volatility over the long-term, whereas China EPU index has the best forecasting performance in the past one year. Our findings have important implications on risk management for investors in crude oil market. JEL classification: C32, C58, E32, Q41, Q47, Keywords: Economic policy uncertainty, EPU index, Crude-oil return volatility, GARCH-MIDAS
Reference Key
ma2019energythe Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors ;Rufei Ma;Changfeng Zhou;Huan Cai;Chengtao Deng
Journal Journal of complementary & integrative medicine
Year 2019
DOI
DOI not found
URL
http://www.sciencedirect.com/science/article/pii/S2352484718304190
Keywords
electrical engineering electronics nuclear engineering

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