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Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis

Year 2016, Volume: 24 Issue: 29, 167 - 181, 29.10.2016
https://doi.org/10.17233/se.2016.06.006

Abstract

In recent years and global financial crisis period, oil prices are characterized by high volatilities. The aim of this paper is to evaluate the comparative performance of volatility models and to reveal the effects of global financial crisis on volatility by using daily returns of crude oil prices. According to the sample periods, the results of models highlight that oil prices are best fit by APGARCH and FIAPGARCH models with Student-t and Skewed Student-t distributions. Furthermore, when considering the global financial crisis, the results show that the crude oil prices are characterized by high volatilities and have long memory effects, as expected.

References

  • Alper, C.E. & O. Torul (2009), “Asymmetric Effects of Oil Prices on Manufacturing Sector in Turkey”, IAEE International Conference in Istanbul, 1-22.
  • Arouri M. & A. Lahiani & D.K. Nguyen (2011), “Return and Volatility Transmission between World Oil Prices and Stock Markets of the GCC Countries”, Economic Modelling, 28(4), 1815–1825.
  • Arouri, M.E.H. & C. Rault (2009), “On the Influence of Oil Prices on Stock Markets: Evidence from Panel Analysis in Gulf Corporation Countries”, Economic Research Forum Reports, ERF Conference, Egypt, 1-19.
  • Bacon, R. & M. Kojima (2006), “Coping with Higher Oil Prices”, Energy Sector Management Assistance Programme Report, The World Bank Group, USA, 1-256.
  • Bacon, R. & M. Kojima (2008), “Coping with Oil Prices Volatility”, Energy Sector Management Assistance Programme Report, The World Bank Group, USA, 1-174.
  • Baillie, R.T. & T. Bollerslev & H.O. Mikkelsen (1996), “Fractionally Integrated Generalized AutoRegressive Conditional Heteroscedasticity”, Journal of Econometrics, 74, 3–30.
  • Baltagi, H.B. (2000), Econometrics, Springer Press, Fourth Edition, USA.
  • Belkhouja, M. & M. Boutahary (2011), “Modeling volatility with time-varying FIGARCH models”, Economic Modelling, 28, 1106–1116.
  • Bollerslev, T. (1986), “Generalised Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, 31, 307-327.
  • Brooks, C. (2002), Introductory Econometrics for Finance, Cambridge University Press, UK.
  • Castillo, P. & C. Montoro & V. Tuesta (2010), “Inflation, oil price volatility and monetary Policy”, Banco Central de Reserva del Peru Working Papers, No. 2010-002.
  • Chatfield, C. (2003), The Analysis of Time Series: An Introduction, Chapman & Hall/CRC Publishing, Sixth Edition, USA.
  • Ding, Z. & C.W.J. Granger & R.F. Engle (1993), “A Long Memory Property of Stock Market Returns and A New Model”, Journal of Empirical Finance, 1, 83–106.
  • Engle, R.F. (1982), “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, 50(4), 987-1007.
  • Federer, J.P. (1996), “Oil price volatility and the macroeconomy”, Journal of Macroeconomics, 18(1), 1-26.
  • Harris, R. & R. Sollis (2003), Applied Time Series Modelling and Forecasting, John Wiley&Sons Inc., USA.
  • Hasan, M.Z. & R.A. Ratti (2012), “Oil price shocks and volatility in Australian stock returns”, Global Accounting, Finance and Economics Conference, Melbourne, VIC, 20-21 February.
  • Hosking, J.R.M. (1981), “Fractional differencing”, Biometrika, 68, 165–176.
  • International Energy Agency (2004), Analysis of the Impact of High Oil Prices on the Global Economy, <http://www.iea.org/papers/2004/high_oil_prices.pdf>, 20 June 2015.
  • Kilian, L. (2009), “Oil Prices Volatility: Origins and Effects, University of Michigan and CEPR”, World Trade Organization Working Paper Series, USA, 1-34.
  • Kojima, M. (2009), “Government Response to Oil Price Volatility”, Extractive Industries for Development Series, No: 10, World Bank, USA, 1-102.
  • Le, D.T. (2015), “Ex-ante Determinants of Volatility in the Crude Oil Market”, International Journal of Financial Research, 6(1), 1-13.
  • Levine, S. & G. Taylor & D. Arthur & M. Tolleth (2014), Understanding Crude Oil and Product Markets, American Petroleum Institute.
  • Mussa, M. (2000), The Impact of Higher Oil Prices on the Global Economy, IMF Research Department, < http://www.imf.org/external/pubs/ft/oil/2000/>, 27 May 2015.
  • Pirog, R. (2005), “World Oil Demand and Its Effects on Oil Prices”, CRS Report for Congress, Congressional Research Service, The Library of Congress, USA, No: RL32530.
  • Rentschler, J.E. (2013), “Oil Price Volatility, Economic Growth and the Hedging Role of Renewable Energy”, Policy Research Working Paper Series 6603, The World Bank.
  • Tang, T. & S.J. Shieh (2006), “Long Memory in Stock Index Futures Markets: A Value-At-Risk Approach”, Physica A, 366, 437-448.
  • UNDP / ESMAP (2005), The Impact of Higher Oil Prices on Low Income Countries and on the Poor, The International Bank of Reconstruction and Development/The World Bank Group ESMAP Reports, USA, 1-58.
  • Yan, L. (2012), “Analysis of the International Oil Price Fluctuations and Its Influencing Factors”, American Journal of Industrial and Business Management, 2, 39-46.
Year 2016, Volume: 24 Issue: 29, 167 - 181, 29.10.2016
https://doi.org/10.17233/se.2016.06.006

Abstract

References

  • Alper, C.E. & O. Torul (2009), “Asymmetric Effects of Oil Prices on Manufacturing Sector in Turkey”, IAEE International Conference in Istanbul, 1-22.
  • Arouri M. & A. Lahiani & D.K. Nguyen (2011), “Return and Volatility Transmission between World Oil Prices and Stock Markets of the GCC Countries”, Economic Modelling, 28(4), 1815–1825.
  • Arouri, M.E.H. & C. Rault (2009), “On the Influence of Oil Prices on Stock Markets: Evidence from Panel Analysis in Gulf Corporation Countries”, Economic Research Forum Reports, ERF Conference, Egypt, 1-19.
  • Bacon, R. & M. Kojima (2006), “Coping with Higher Oil Prices”, Energy Sector Management Assistance Programme Report, The World Bank Group, USA, 1-256.
  • Bacon, R. & M. Kojima (2008), “Coping with Oil Prices Volatility”, Energy Sector Management Assistance Programme Report, The World Bank Group, USA, 1-174.
  • Baillie, R.T. & T. Bollerslev & H.O. Mikkelsen (1996), “Fractionally Integrated Generalized AutoRegressive Conditional Heteroscedasticity”, Journal of Econometrics, 74, 3–30.
  • Baltagi, H.B. (2000), Econometrics, Springer Press, Fourth Edition, USA.
  • Belkhouja, M. & M. Boutahary (2011), “Modeling volatility with time-varying FIGARCH models”, Economic Modelling, 28, 1106–1116.
  • Bollerslev, T. (1986), “Generalised Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, 31, 307-327.
  • Brooks, C. (2002), Introductory Econometrics for Finance, Cambridge University Press, UK.
  • Castillo, P. & C. Montoro & V. Tuesta (2010), “Inflation, oil price volatility and monetary Policy”, Banco Central de Reserva del Peru Working Papers, No. 2010-002.
  • Chatfield, C. (2003), The Analysis of Time Series: An Introduction, Chapman & Hall/CRC Publishing, Sixth Edition, USA.
  • Ding, Z. & C.W.J. Granger & R.F. Engle (1993), “A Long Memory Property of Stock Market Returns and A New Model”, Journal of Empirical Finance, 1, 83–106.
  • Engle, R.F. (1982), “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, 50(4), 987-1007.
  • Federer, J.P. (1996), “Oil price volatility and the macroeconomy”, Journal of Macroeconomics, 18(1), 1-26.
  • Harris, R. & R. Sollis (2003), Applied Time Series Modelling and Forecasting, John Wiley&Sons Inc., USA.
  • Hasan, M.Z. & R.A. Ratti (2012), “Oil price shocks and volatility in Australian stock returns”, Global Accounting, Finance and Economics Conference, Melbourne, VIC, 20-21 February.
  • Hosking, J.R.M. (1981), “Fractional differencing”, Biometrika, 68, 165–176.
  • International Energy Agency (2004), Analysis of the Impact of High Oil Prices on the Global Economy, <http://www.iea.org/papers/2004/high_oil_prices.pdf>, 20 June 2015.
  • Kilian, L. (2009), “Oil Prices Volatility: Origins and Effects, University of Michigan and CEPR”, World Trade Organization Working Paper Series, USA, 1-34.
  • Kojima, M. (2009), “Government Response to Oil Price Volatility”, Extractive Industries for Development Series, No: 10, World Bank, USA, 1-102.
  • Le, D.T. (2015), “Ex-ante Determinants of Volatility in the Crude Oil Market”, International Journal of Financial Research, 6(1), 1-13.
  • Levine, S. & G. Taylor & D. Arthur & M. Tolleth (2014), Understanding Crude Oil and Product Markets, American Petroleum Institute.
  • Mussa, M. (2000), The Impact of Higher Oil Prices on the Global Economy, IMF Research Department, < http://www.imf.org/external/pubs/ft/oil/2000/>, 27 May 2015.
  • Pirog, R. (2005), “World Oil Demand and Its Effects on Oil Prices”, CRS Report for Congress, Congressional Research Service, The Library of Congress, USA, No: RL32530.
  • Rentschler, J.E. (2013), “Oil Price Volatility, Economic Growth and the Hedging Role of Renewable Energy”, Policy Research Working Paper Series 6603, The World Bank.
  • Tang, T. & S.J. Shieh (2006), “Long Memory in Stock Index Futures Markets: A Value-At-Risk Approach”, Physica A, 366, 437-448.
  • UNDP / ESMAP (2005), The Impact of Higher Oil Prices on Low Income Countries and on the Poor, The International Bank of Reconstruction and Development/The World Bank Group ESMAP Reports, USA, 1-58.
  • Yan, L. (2012), “Analysis of the International Oil Price Fluctuations and Its Influencing Factors”, American Journal of Industrial and Business Management, 2, 39-46.
There are 29 citations in total.

Details

Journal Section Articles
Authors

Mert Ural

Publication Date October 29, 2016
Submission Date June 29, 2016
Published in Issue Year 2016 Volume: 24 Issue: 29

Cite

APA Ural, M. (2016). Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis. Sosyoekonomi, 24(29), 167-181. https://doi.org/10.17233/se.2016.06.006
AMA Ural M. Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis. Sosyoekonomi. July 2016;24(29):167-181. doi:10.17233/se.2016.06.006
Chicago Ural, Mert. “Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis”. Sosyoekonomi 24, no. 29 (July 2016): 167-81. https://doi.org/10.17233/se.2016.06.006.
EndNote Ural M (July 1, 2016) Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis. Sosyoekonomi 24 29 167–181.
IEEE M. Ural, “Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis”, Sosyoekonomi, vol. 24, no. 29, pp. 167–181, 2016, doi: 10.17233/se.2016.06.006.
ISNAD Ural, Mert. “Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis”. Sosyoekonomi 24/29 (July 2016), 167-181. https://doi.org/10.17233/se.2016.06.006.
JAMA Ural M. Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis. Sosyoekonomi. 2016;24:167–181.
MLA Ural, Mert. “Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis”. Sosyoekonomi, vol. 24, no. 29, 2016, pp. 167-81, doi:10.17233/se.2016.06.006.
Vancouver Ural M. Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis. Sosyoekonomi. 2016;24(29):167-81.