Geopolitical risk uncertainty and oil future volatility: Evidence from MIDAS models

Dexiang Mei, Feng Ma, Yin Liao, Lu Wang

Research output: Contribution to journalArticlepeer-review

21 Citations (Scopus)

Abstract

Using a textual analysis based geopolitical risk (GPR) index, this paper exploits the effects of geopolitical risk uncertainty on oil futures price volatility within a mixed data sampling (MIDAS) modeling framework. With a variety of MIDAS specifications, our in-sample estimation results suggest that the short-term (e.g. one-day-ahead) oil realized volatility is positively associated with GPR uncertainty, and our out-of-sample forecasting exercise indicates that the GPR index is useful for improving short-term oil futures volatility prediction. In addition, we find that the categorical GPR index: GPR action related index (GPA), contributes more to the long-term oil volatility forecasting, compared with GPR threat related index (GPT).
Original languageEnglish
Article number104624
Pages (from-to)1-8
Number of pages8
JournalEnergy Economics
Volume86
DOIs
Publication statusPublished - Feb 2020

Keywords

  • oil futures
  • realized volatility
  • Geopolitical risk uncertainty
  • MIDAS

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