The predictive power of the oil variance risk premium

IF 10.2 2区 经济学 0 ENVIRONMENTAL STUDIES
David G. McMillan , Salem Adel Ziadat
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引用次数: 0

Abstract

This paper examines the ability of the oil market variance risk premium (VRP) to predict both financial and key macroeconomic series. Interest in understanding the movement of such variables increasingly involves considering measures of investor risk, for which the VRP, that incorporates both implied and realised variance, has recently come to the fore. It is well established that oil price movement impacts both the stock market and wider economy and thus, we examine whether this is also true of the oil VRP. Using monthly US data over the period from 2009 to 2021, we demonstrate the nature of oil VRP predictive power for oil and stock returns, as well as output growth, unemployment, and inflation. Of notable interest, while predictability from the oil VRP series dominates at the one-month horizon and (largely) wanes at over longer time periods, the reverse is found for the stock VRP. These results are robust to the inclusion of additional, established, predictor variables. This indicates that the impact of oil market risk has a more immediate effect on both the stock market and economy, with stock market risk reflecting longer term considerations. A simple out-of-sample exercise supports the view that the inclusion of oil VRP improves forecasts over alternative models that exclude this series.
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来源期刊
Resources Policy
Resources Policy ENVIRONMENTAL STUDIES-
CiteScore
13.40
自引率
23.50%
发文量
602
审稿时长
69 days
期刊介绍: Resources Policy is an international journal focused on the economics and policy aspects of mineral and fossil fuel extraction, production, and utilization. It targets individuals in academia, government, and industry. The journal seeks original research submissions analyzing public policy, economics, social science, geography, and finance in the fields of mining, non-fuel minerals, energy minerals, fossil fuels, and metals. Mineral economics topics covered include mineral market analysis, price analysis, project evaluation, mining and sustainable development, mineral resource rents, resource curse, mineral wealth and corruption, mineral taxation and regulation, strategic minerals and their supply, and the impact of mineral development on local communities and indigenous populations. The journal specifically excludes papers with agriculture, forestry, or fisheries as their primary focus.
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