Forecasting Commodity Markets Volatility: HAR or Rough?

33 Pages Posted: 10 Feb 2020 Last revised: 8 Mar 2020

See all articles by Mesias Alfeus

Mesias Alfeus

Department of Statistics and Actuarial Science - Stellenbosch University

Christina Sklibosios Nikitopoulos

University of Technology Sydney - Business School; Financial Research Network (FIRN)

Date Written: February 29, 2020

Abstract

Commodity is one of the most volatile markets and forecasting its volatility is an issue of paramount importance. We study the dynamics of the commodity markets volatility by employing fractional stochastic volatility and heterogeneous autoregressive (HAR) models. Based on a high-frequency futures price dataset of 22 commodities, we confirm that the volatility of commodity markets is rough and volatility components over different horizons are economically and statistically significant. Long memory with anti-persistence is evident across all commodities, with weekly volatility dominating in most commodity markets and daily volatility for oil and gold markets. HAR models display a clear advantage in forecasting performance compared to fractional volatility models.

Keywords: commodity markets, realized volatility, fractional Brownian motion, HAR, volatility forecast

JEL Classification: C20, C53, C58, G13, Q02

Suggested Citation

Alfeus, Mesias and Sklibosios Nikitopoulos, Christina, Forecasting Commodity Markets Volatility: HAR or Rough? (February 29, 2020). Available at SSRN: https://ssrn.com/abstract=3520500 or http://dx.doi.org/10.2139/ssrn.3520500

Mesias Alfeus

Department of Statistics and Actuarial Science - Stellenbosch University ( email )

Matieland
m
Stellenbosch, 7602
South Africa
0633236629 (Phone)
7405 (Fax)

Christina Sklibosios Nikitopoulos (Contact Author)

University of Technology Sydney - Business School ( email )

15 Broadway, Ultimo
Sydney 2007, New South Wales
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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