Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment
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 co...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-12-01
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| Series: | Energies |
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| Online Access: | https://www.mdpi.com/1996-1073/14/23/8085 |
| _version_ | 1797507844590796800 |
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| author | Rangan Gupta Christian Pierdzioch |
| author_facet | Rangan Gupta Christian Pierdzioch |
| author_sort | Rangan Gupta |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-03-10T04:54:11Z |
| format | Article |
| id | doaj.art-49bef0d80c944517958c005ed9c049ad |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-10T04:54:11Z |
| publishDate | 2021-12-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-49bef0d80c944517958c005ed9c049ad2023-11-23T02:22:24ZengMDPI AGEnergies1996-10732021-12-011423808510.3390/en14238085Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting ExperimentRangan Gupta0Christian Pierdzioch1Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South AfricaDepartment of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O. Box 700822, 22008 Hamburg, GermanyWe 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.https://www.mdpi.com/1996-1073/14/23/8085climate risksrealized volatilityoilnatural gasforecasting |
| spellingShingle | Rangan Gupta Christian Pierdzioch Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment Energies climate risks realized volatility oil natural gas forecasting |
| title | Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment |
| title_full | Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment |
| title_fullStr | Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment |
| title_full_unstemmed | Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment |
| title_short | Climate Risks and the Realized Volatility Oil and Gas Prices: Results of an Out-of-Sample Forecasting Experiment |
| title_sort | climate risks and the realized volatility oil and gas prices results of an out of sample forecasting experiment |
| topic | climate risks realized volatility oil natural gas forecasting |
| url | https://www.mdpi.com/1996-1073/14/23/8085 |
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