Crude oil volatility forecasting: New evidence from world uncertainty index

In this study, we use the prevailing GARCH-MIDAS model to explore the forecasting performance of world uncertainty index (WUI) in crude oil volatility. Our empirical results indicate the WUI can outperform the economic policy uncertainty (EPU) and geopolitical risk index (GPR). Using the encompassing test, our study provides strong evidences that the predictive content from WUI can encompass the EPU and GPR in predicting crude oil volatility.

Automated summary

This study examines the forecasting performance of the world uncertainty index (WUI) in crude oil volatility using the popular GARCH-MIDAS model. Empirical results demonstrate that the WUI outperforms the economic policy uncertainty (EPU) and geopolitical risk index (GPR). Through the encompassing test, our study provides strong evidence that the predictive content from WUI can encompass the EPU and GPR in predicting crude oil volatility.