Climate risks and the realized volatility oil and gas prices : results of an out-of-sample forecasting experiment
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Date
Authors
Rangan, Gupta
Pierdzioch, Christian
Journal Title
Journal ISSN
Volume Title
Publisher
MDPI
Abstract
We extend the widely-studied Heterogeneous Autoregressive Realized Volatility (HAR-RV)
model to examine the out-of-sample forecasting value of climate-risk factors for the realized volatility
of movements of the prices of crude oil, heating oil, and natural gas. The climate-risk factors have
been constructed in recent literature using techniques of computational linguistics, and consist of
daily proxies of physical (natural disasters and global warming) and transition (U.S. climate policy
and international summits) risks involving the climate. We find that climate-risk factors contribute
to out-of-sample forecasting performance mainly at a monthly and, in some cases, also at a weekly
forecast horizon. We demonstrate that our main finding is robust to various modifications of our
forecasting experiment, and to using three different popular shrinkage estimators to estimate the
extended HAR-RV model. We also study longer forecast horizons of up to three months, and we
account for the possibility that policymakers and forecasters may have an asymmetric loss function.
Description
Keywords
Climate risks, Realized volatility, Oil, Natural gas, Forecasting
Sustainable Development Goals
Citation
Gupta, R.; Pierdzioch, C.
Climate Risks and the Realized
Volatility Oil and Gas Prices: Results
of an Out-of-Sample Forecasting
Experiment. Energies 2021, 14, 8085.
https://DOI.org/ 10.3390/en14238085.