Modeling and Forecasting Commodity Market Volatility with Long-term Economic and Financial Variables
Journal
Journal of Forecasting
ISSN
0277-6693
Type
journal article
Date Issued
2020
Author(s)
Abstract
This paper investigates the time-varying volatility patterns of some major commodities as well as the potential factors that drive their long-term volatility component. For this purpose, we make use of a recently proposed GARCH-MIDAS approach which typically allows us to examine the role of economic and financial variables of different frequencies. Using commodity futures for Crude Oil(WTI and Brent), Gold, Silver and Platinum as well as a commodity index, our results show the necessity of disentangling the short-term and long-term components in modeling and forecasting commodity volatility. They also indicate that the long-term volatility of most commodity futures is significantly driven by the level of the global real economic activity as well as the changes in consumer sentiment, industrial production, and economic policy uncertainty. However, the forecasting results are not alike across commodity futures as no single model fits all commodities.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Publisher
Wiley
Volume
39
Number
2
Start page
126
End page
142
Division(s)
Eprints ID
257164