A Fear Index to Predict Oil Futures Returns

Arbeitspapier

This paper evaluates the predictability of WTI light sweet crude oil futures by using the variance risk premium, i.e. the difference between model-free measures of implied and realized volatilities. Additional regressors known for their ability to explain crude oil futures prices are also considered, capturing macroeconomic, financial and oil-specific influences. The results indicate that the explanatory power of the (negative) variance risk premium on oil excess returns is particularly strong (up to 25% for the adjusted Rsquared across our regressions). It complements other financial (e.g. default spread) and oil-specific (e.g. US oil stocks) factors highlighted in previous literature.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 62.2013

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Financial Forecasting and Simulation ; Energy Forecasting
• Subject: Oil Futures ; Variance Risk Premium ; Forecasting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chevallier, Julien ; Sévi, Benoît
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/89593
• Last update: 10.03.2025, 11:42 AM CET