City Research Online

Abstract

This paper combines the Heterogeneous Autoregressive Realised Volatility (HAR-RV) model and the Markov Regime Switching (MRS) approach to estimate and forecast volatility of energy futures contracts traded at the Tokyo Commodity Exchange (TOCOM). The proposed MRS-HAR-RV model allows the dynamics of the realised volatility to change as market conditions change. The dataset consists of intraday prices for gasoline, kerosene and crude oil futures. Estimation results suggest MRS-HAR-RV model can capture dynamics of price volatility of energy futures better than alternative models. However, out-of-sample forecast evaluation results show that MRS-HAR-RV can only produce better forecasts for more liquid contracts. Moreover, MRS-HAR-RV model seems to less over-predict and more under-predict the volatility compared to HAR-RV, HAR-RV-CJ, GARCH, and MRS-GARCH models.

Publication Type:	Article
Additional Information:	© Elsevier 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords:	Regime-switch; TOCOM; Realised volatility; petroleum futures
Subjects:	T Technology > TJ Mechanical engineering and machinery T Technology > TL Motor vehicles. Aeronautics. Astronautics
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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