Infectious Diseases, Market Uncertainty and Oil Market Volatility

By Elie Bouri, Riza Demirer, Rangan Gupta, Christian Pierdzioch. Energies, 2020

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We examine the predictive power of a daily newspaper-based index of uncertainty associated with infectious diseases (EMVID) for oil-market volatility. Using the heterogeneous autoregressive realized volatility (HAR-RV) model, we document a positive effect of the EMVID index on the realized volatility of crude oil prices at the highest level of statistical significance, within-sample. Importantly, we show that incorporating EMVID into a forecasting setting significantly improves the forecast accuracy of oil realized volatility at short-, medium-, and long-run horizons. Our findings comprise important implications for investors and risk managers during the unprecedented episode of high uncertainty resulting from the COVID-19 pandemic.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/91b2b8e80707fe703238756e6a0e656b5f530daa