Title

Forecasting value-at-risk in oil prices in the presence of volatility shifts

Source of Publication

Review of Financial Economics

Abstract

© 2018 The University of New Orleans Recent evidence suggests shifts (structural breaks) in the volatility of returns causes non-normality by significantly increasing kurtosis. In this paper, we endogenously detect significant shifts in the volatility of oil prices and incorporate this information to estimate Value-at-Risk (VaR) to accurately forecast large declines in oil prices. Our out-of-sample performance results indicate that the model, which incorporates both time varying volatility (without making any distributional assumptions) and shifts in volatility, produces more accurate VaR forecasts than several benchmark methods. We make a timely contribution as the recent more frequent occurrences of unexpected large oil price declines has gained significant attention because of its substantial impact on the financial markets and the global economy.

Document Type

Article

First Page

341

Last Page

350

Publication Date

7-1-2019

DOI

10.1002/rfe.1047

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