The forecasting power of EPU for crude oil return volatility

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Published in:	Energy reports 5(2019) vom: Nov., Seite 866-873
Authors and Corporations:	Ma, Rufei (Author), Zhou, Changfeng (Author), Cai, Huan (Author), Deng, Chengtao (Author)
Title:	The forecasting power of EPU for crude oil return volatility/ Rufei Ma, Changfeng Zhou, Huan Cai, Chengtao Deng
Type of Resource:	E-Book Component Part
Language:	English
published:	2019
Series:	: Energy reports, 5(2019) vom: Nov., Seite 866-873 , volume:5
Subjects:	Aufsatz in Zeitschrift
Source:	Verbunddaten SWB Lizenzfreie Online-Ressourcen

Description
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.
ISSN:	2352-4847
DOI:	10.1016/j.egyr.2019.07.002