Forecasting oil futures realized range‐based volatility with jumps, leverage effect, and regime switching: New evidence from MIDAS models

This study adds ample evidences on forecasting oil futures realized range‐based volatility (RRV) in the mixed data sampling (MIDAS) framework. Considering the features and frequent extreme risk in oil futures trading in practice, we investigate the effect of jumps, leverage effect, and regime switch...

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Bibliographic Details
Published in:Journal of forecasting 2022-07, Vol.41 (4), p.853-868
Main Authors: Lu, Xinjie, Ma, Feng, Wang, Jiqian, Liu, Jing
Format: Article
Language:English
Subjects:
crude oil futures
Forecasting
Futures
Futures market
jumps
Leverage
leverage effect
Petroleum
realized range‐based volatility
regime switching
Risk
Trading
Volatility
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Summary:This study adds ample evidences on forecasting oil futures realized range‐based volatility (RRV) in the mixed data sampling (MIDAS) framework. Considering the features and frequent extreme risk in oil futures trading in practice, we investigate the effect of jumps, leverage effect, and regime switching. The results highlight the great importance of combing jumps, leverage effect, and regime switching simultaneously in oil futures RRV forecasting, which still holds the best predictability during a highly volatile state. Moreover, considering regime switching can also improve forecast accuracy for longer forecasting horizons such as weekly, biweekly, and monthly. The conclusions are robust to various settings and criteria. Our findings are essential for oil enterprises and quantitative investors to have a good command of crude oil futures market characteristics and achieve risk aversion.
ISSN:0277-6693
1099-131X
DOI:10.1002/for.2837