Forecasting Volatility and Spillovers in Crude Oil Spot, Forward and Futures Markets

23 Pages Posted: 12 May 2009  

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

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

Roengchai Tansuchat

Faculty of Economics - Chiang Mai University

Date Written: May 10, 2009

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.

Keywords: Volatility spillovers, multivariate GARCH, conditional correlations, crude oil spot prices, spot returns, forward returns, futures returns

JEL Classification: C22, C32, G17, G32

Suggested Citation

Chang, Chia-Lin and McAleer, Michael and Tansuchat, Roengchai, Forecasting Volatility and Spillovers in Crude Oil Spot, Forward and Futures Markets (May 10, 2009). Available at SSRN: https://ssrn.com/abstract=1402164 or http://dx.doi.org/10.2139/ssrn.1402164

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

Roengchai Tansuchat

Faculty of Economics - Chiang Mai University ( email )

Thailand

Paper statistics

Downloads
1,152
Rank
13,561
Abstract Views
6,797