Forecasting the return volatility of energy prices: A GARCH-MIDAS approach

Salisu, Afees A; Swaray, Raymond

Abstract

This chapter offers an extension to the literature on energy prices by forecasting the return volatility of these prices using the GARCH-MIDAS approach. In addition to the realized volatility, it also evaluates the predictability of relevant macroeconomic information such as industrial growth and consumer prices (with and without energy components) in the predictive model for the return volatility of energy prices. The analyses are distinctly conducted for full-sample, pre-GFC and post-GFC periods. On average, the findings support the inclusion of these macroeconomic information particularly output growth and realized volatility as they yield good in-sample and out-of-sample predictability results for the return volatility. However, the study finds contrasting evidence between the pre-GFC and post-GFC periods.

Citation

Salisu, A. A., & Swaray, R. (in press). Forecasting the return volatility of energy prices: A GARCH-MIDAS approach. In S. Goutte, & D. K. Nguyen (Eds.), Handbook of energy finance: Theories, practices and simulations. World Scientific Publishing. https://doi.org/10.1142/11213

• Acceptance Date: Nov 15, 2017
• Deposit Date: Sep 3, 2019
• Publisher: World Scientific Publishing
• Book Title: Handbook of energy finance: Theories, practices and simulations
• ISBN: 978-981-3278-37-0
• DOI: https://doi.org/10.1142/11213
• Public URL: https://hull-repository.worktribe.com/output/498850
• Publisher URL: https://www.worldscientific.com/worldscibooks/10.1142/11213#t=aboutBook