Volatility Forecasting Across Tanker Freight Rates: The Role of Oil Price Shocks
35 Pages Posted: 27 Feb 2019
Date Written: July 1, 2018
This paper examines whether the inclusion of oil price shocks of different origin as exogenous variables in a wide set of GARCH-X models improves the accuracy of their volatility forecasts for spot and 1-year time-charter tanker freight rates. Kilian’s (2009) oil price shocks of different origin enter GARCH-X models which, among other stylized facts of the tanker freight rates examined, take into account the presence of asymmetric and long-memory effects. The results reveal that the inclusion of aggregate oil demand and oil-specific (precautionary) demand shocks improves significantly the accuracy of the volatility forecasts drawn.
Keywords: Volatility Forecasts, Tanker Freight Rates, Oil Price Shocks, GARCH-X Models
JEL Classification: G11, G12, G13, G14
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