A Fear Index to Predict Oil Futures Returns
Sévi, Benoît; Chevallier, Julien (2013-05), A Fear Index to Predict Oil Futures Returns. https://basepub.dauphine.fr/handle/123456789/11714
TypeDocument de travail / Working paper
Fondazione Eni Enrico Mattei
Series titleNote di lavoro
MetadataShow full item record
Abstract (EN)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.
Subjects / KeywordsOil Futures; Variance Risk Premium; Forecasting
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