Forecasting oil price realized volatility using information channels from other asset classes

Motivated from Ross (1989) who maintains that asset volatilities are synonymous to the information flow, we claim that cross-market volatility transmission effects are synonymous to cross-market information flows or information channels from one market to another. Based on this assertion we assess whether cross-market volatility flows contain important information that can improve the accuracy of oil price realized volatility forecasting. We concentrate on realized volatilities derived from the intra-day prices of the Brent crude oil and four different asset classes (Stocks, Forex, Commodities and Macro), which represent the different nformation channels by which oil price volatility is impacted from. We employ a HAR framework and estimate forecasts for 1-day to 66-ays ahead. Our findings provide strong evidence that the use of the different nformation channels enhances the predictive accuracy of oil price realized volatility at all forecasting horizons. Numerous forecasting evaluation tests and alternative model specifications confirm the robustness of our results. (C) 2017 Elsevier Ltd. All rights reserved.