Impact of crude oil volatility jumps on sustainable investments: Evidence from India

Abstract

This study examines the impact of crude oil volatility jumps on the realized volatility (RV) of green and dirty stocks in India. In doing so, we first estimate the time‐varying jumps in oil market implied volatility index (OVX) and then augment the heterogeneous autoregressive (HAR) process with the information on such jumps. Our sample runs from December 2012 to April 2022, which includes 2328 data points. Comparing a range of HAR‐type models, we find that crude oil volatility jumps provide additional information, which is not contained even in the OVX index itself. In particular, the HAR–RV model that considers both leverage effects and the information on volatility jumps produces superior forecasts compared with the existing approaches. The economic significance of these results is also supported by a simple value‐at‐risk analysis.