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Time-varying rare disaster risks, oil returns and volatility

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journal contribution
posted on 01.11.2018, 15:06 authored by Riza Demirer, Rangan Gupta, Tahir Suleman, Mark Wohar
© 2018 Elsevier B.V. This paper provides a novel perspective to the predictive ability of rare disaster risks for West Texas Intermediate (WTI) oil market returns and volatility using a nonparametric quantile-based methodology over the monthly period of 1918:01–2013:12. We show that a nonlinear relationship and structural breaks exists between oil returns and various rare disaster risks; hence, linear Granger causality tests are misspecified and the linear model results of non-predictability are unreliable. However, the quantile-causality test shows that rare disaster-risks strongly affect both WTI returns and volatility, with stronger evidence of predictability observed at lower quantiles of the respective conditional distributions. Our results are robust to alternative specification of volatility (based on a GARCH model), and measure of rare disaster risks (based on the number of crises).

History

School

  • Business and Economics

Department

  • Business

Published in

Energy Economics

Volume

75

Pages

239 - 248

Citation

DEMIRER, R. ... et al., 2018. Time-varying rare disaster risks, oil returns and volatility. Energy Economics, 75, pp. 239-248.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This paper was accepted for publication in the journal Energy Economics and the definitive published version is available at https://doi.org/10.1016/j.eneco.2018.08.021.

Acceptance date

20/08/2018

Publication date

2018-08-24

ISSN

0140-9883

Language

en