Volatility Relationship between Crude Oil and Petroleum Products |
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| Authors: | Thomas K. Lee John Zyren |
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| Affiliation: | (1) School of Business Administration, Marymount University, 2807 North Glebe Road, Arlington, VA 22207-4299, USA;(2) Energy Information Administration, The Department of Energy, Washington, DC, 20585, USA |
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| Abstract: | This paper utilizes calculated historical volatility and GARCH models to compare the historical price volatility behavior of crude oil, motor gasoline and heating oil in U.S. markets since 1990. We incorporate a shift variable in the GARCH/TARCH models to capture the response of price volatility to a change in OPEC’s pricing behavior. This study has three major conclusions. First, there was an increase in volatility as a result of a structural shift to higher crude oil prices after April 1999. Second, volatility shocks from current news are not important since GARCH effects dominate ARCH effects in the variance equation. Third, persistence of volatility in all commodity markets is quite transitory, with half-lives normally being a few weeks. |
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| Keywords: | KeywordHeading" > oil markets price volatility petroleum product GARCH asymmetric response |
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