INE oil futures volatility prediction: Exchange rates or international oil futures volatility?

• Published in: Energy economics 2023-10, Vol.126, p.106935, Article 106935
• Main Authors: Lu, Xinjie, Ma, Feng, Li, Haibo, Wang, Jianqiong
• Format: Article
• Language: English
• Subjects: Exchange rate; INE oil futures market; International oil futures volatility; Regime switching; Volatility forecasting
• ISSN: 0140-9883
• DOI: 10.1016/j.eneco.2023.106935

This study examines the predictive performances of volatility information from international oil futures volatility and exchange rates for Shanghai International Energy Exchange (INE) oil futures volatility. Various empirical findings show that the predictive performance of international oil futures volatility is superior to that of the exchange rate. In addition, we examine whether regime switching is efficient, and the results show that time-varying regime switching plays a satisfactory role. Moreover, these results are robust even during some special periods, including the COVID-19 pandemic, the Russia–Ukraine conflict, and different business cycles. This study provides new insights into the volatility prediction of the INE oil futures market. •This study compares performances of international oil futures volatility and exchange rates for predicting INE oil futures volatility.•International oil futures volatility information has superior performances than exchange rates.•Time-varying regime switching plays a satisfactory role in providing improvement in forecasting accuracy.