Forecasting Volatility and Spillovers in Crude Oil Spot, Forward and Futures Markets
National Chung Hsing University - Department of Applied Economics, Department of Finance
Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics
Maejo University - Faculty of Economics
May 10, 2009
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.
Number of Pages in PDF File: 23
Keywords: Volatility spillovers, multivariate GARCH, conditional correlations, crude oil spot prices, spot returns, forward returns, futures returns
JEL Classification: C22, C32, G17, G32working papers series
Date posted: May 12, 2009
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