Journal
JOURNAL OF EMPIRICAL FINANCE
Volume 43, Issue -, Pages 130-142Publisher
ELSEVIER
DOI: 10.1016/j.jempfin.2017.06.005
Keywords
Crude oil; Volatility; Regime switching; Mixed-frequency data Sampling; Forecasting
Categories
Funding
- National Science Foundation of China [71501095, 71320107002, 71601161, 71671193]
- Program for Innovation Research in Central University of Finance and Economics
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We introduce a regime switching GARCH-MIDAS model to investigate the relationships between oil price volatility and its macroeconomic fundamentals. Our model takes into account both effects of long-term macroeconomic factors and short-term structural breaks on oil volatility. The in-sample and out-of-sample results show that macroeconomic fundamentals can provide useful information regarding future oil volatility beyond the historical volatility. We also find the evidence that the structural breaks cause higher degree of GARCH-implied volatility persistence. Two-regime GARCH-MIDAS models can significantly beat their single-regime counterparts in forecasting oil volatility out-of-sample.
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