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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

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Type
Document de travail / Working paper
Date
2013-05
Publisher
Fondazione Eni Enrico Mattei
Series title
Note di lavoro
Series number
2013.062
Published in
Milan
Pages
26
Metadata
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Author(s)
Sévi, Benoît
Chevallier, Julien
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 / Keywords
Oil Futures; Variance Risk Premium; Forecasting
JEL
C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
G17 - Financial Forecasting and Simulation
Q47 - Energy Forecasting