A Fear Index to Predict Oil Futures Returns

Sévi, Benoît; Chevallier, Julien

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

Éditeur

Fondazione Eni Enrico Mattei

Titre de la collection

Note di lavoro

Numéro dans la collection

2013.062

Ville d’édition

Milan

Métadonnées

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Auteur(s)

Sévi, Benoît
Chevallier, Julien

Résumé (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.