Open Access Open Access  Restricted Access Subscription Access

Dynamics of Crude Oil Volatility: An Application of Markov-Switching GARCH Models

Muhammad Ishfaaq Khodabocus, Jason Narsoo

Abstract



Firstly, this study assesses the efficiency of several volatility estimators with respect to WTI crude oil returns. It is found that the Rogers-Satchell volatility estimator is the most efficient among the different volatility estimators considered. Secondly, this study provides an extensive and systematic evaluation of the relative forecasting performance of the Markov Regime-Switching GARCH model and different single regime GARCH models for the volatility of the daily spot crude oil prices. The volatility forecasting performance of GARCH(1,1), EGARCH(1,1) and MS-GARCH(1,1), using the normal distribution, Student's-t distribution and Generalized Error Distribution for each model, were compared over the weekly, monthly and quarterly horizons. It was found that EGARCH models performed better for the weekly horizon while for the longer horizons, the MS-GARCH models performed better. Also, for a quarterly horizon, it was found that the MS-GARCH-t was the model providing the best volatility forecasts while for other horizons, no single model emerged as the best one.

Keywords


GARCH-type models, Hybrid model, Markov-Switching GARCH, Innovation distribution, Volatility, Crude Oil

Full Text:

PDF


Disclaimer/Regarding indexing issue:

We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information. Also: DOI is paid service which provided by a third party. We never mentioned that we go for this for our any journal. However, journal have no objection if author go directly for this paid DOI service.