Abstract:
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.
