Forecasting oil futures market volatility in a financialized world: Why speculative activities matter |
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| Institution: | 1. Western Kentucky University, Bowling Green KY42101, USA;2. Utah Valley University, Orem, UT 84058, USA;3. Indiana Business Research Center, Indiana University, Bloomington, IN 47405, USA;1. School of Finance, Southwestern University of Finance and Economics, Chengdu, Sichuan, PR China;2. School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan, PR China;1. School of Finance and Accounting, Fuzhou University of International Studies and Trade, No. 28, Yuhuan Road, Shouzhan New District, Changle, Fuzhou City, Fujian Province, China;2. International School of Business and Finance, Sun Yat-sen University, Zhuhai City, Guangdong Province, 519082, China;3. Department of Finance, National Sun Yat-sen University, No. 70 Lien-hai Rd., Kaohsiung 804, Taiwan, ROC;1. Robert Plaster College of Business, Missouri Southern State University, Joplin Missouri 64801, United States;2. William Franke College of Business, Northern Arizona University, Flagstaff, AZ 86011, United States;1. Åbo Akademi University, Faculty of Social Sciences, Business and Economics, Asa Vänrikinkatu 3 B, Turku, Finland;2. North South University, School of Business and Economics, Dhaka, Bangladesh;3. Iowa State University, Department of Economics, 468J Heady Hall, Ames, IA 50011, USA;4. Doane University, College of Business, 411 Gaylord Hall, 1014 Boswell Ave, Crete, NE 68333, USA |
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| Abstract: | We analyze the relation between volatility and speculative activities in the crude oil futures market and provide short-term forecasts accordingly. By incorporating trading volume and opening interest (speculative ratio) into the volatility dynamics, we document the subtle interaction between the two measures of which the volatility-averse behavior of speculative activities plays a considerable role in the market. Moreover, by accounting for structural changes, we find significant evidence that this behavior currently becomes weaker than in the past, which implies the oil futures market is less informative and/or less risk-averse in recent time period. Our forecasts based on these features perform very well under the predictive preferences that are consistent with the volatility-averse behavior in the oil futures market. We provide discussions and policy inferences. |
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| Keywords: | Oil futures Volatility forecasts Speculative ratio |
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