Modelling Crude Oil Price Volatility and the Effects of Global Financial Crisis

Abstract

In recent years and global financial crisis period, oil prices are characterized by high volatilities. The aim of this paper is to evaluate the comparative performance of volatility models and to reveal the effects of global financial crisis on volatility by using daily returns of crude oil prices. According to the sample periods, the results of models highlight that APGARCH and FIAPGARCH models with Student-t and Skewed Student-t distributions best fit oil prices. Furthermore, when considering the global financial crisis, the results show that the crude oil prices are characterized by high volatilities and have long memory effects, as expected. Keywords: Crude Oil, Volatility, Asymmetry, Long Memory. JEL Classification Codes : C22, C52, Q43. ÖzSon yıllarda ve küresel finansal kriz döneminde, petrol fiyatları yüksek oynaklık düzeyleriyle nitelendirilmektedir. Bu çalışmanın amacı, ham petrol fiyatlarının günlük getirilerini kullanarak oynaklık modellerinin karşılaştırmalı performansını değerlendirmek ve küresel krizin oynaklık üzerindeki etkisini incelemektir. Farklı örneklem dönemleri dikkate alındığında, modellerin tahmin sonuçları petrol fiyatlarının en uygun biçimde Student-t ve Çarpık Student-t dağılımlı APGARCH ve FIAPGARCH modelleriyle yorumlandığını vurgulamaktadır. Ayrıca, küresel finansal kriz göz önüne alındığında sonuçlar, beklendiği gibi ham petrol fiyatlarının yüksek oynaklıklarla nitelendirildiğini ve uzun hafıza etkilerine sahip olduğunu göstermektedir.

Did the Us Shale Oil Revolution Ruin Oil Industry Stock Market Returns?

“…There are studies documenting the negative link between crude oil prices and stock market performance (Jones and Kaul, 1996;Sadorsky, 1999;Faff and Brailsford, 1999;Pirog, 2005; Bastianin Ural 2016;Nadal et al, 2017). Given that the slope for oil prices in 2002-2010 is 7.3, the expectation is that stock markets would be performing less than optimal because of rising oil prices.…”

“…Due to oil's preeminent position in the world economy, historically, crude oil prices are more volatile than other commodities with asymmetric impacts on future movements as "negative shocks lead to higher subsequent volatility than positive shocks" (Ural, 2016). The increases in US shale oil production influenced the world markets "and was a key factor in the reduction of oil prices in 2014" (Malanichev, 2018).…”

“…One historical study from the postwar period from 1947 through 1991 testing for causal impacts on stock markets based on oil price shocks finds that "the reaction of United States and Canadian stock prices to oil shocks can be completely accounted for by the impact of these shocks on real cash flows alone" (Jones and Kaul, 1996). The volatility around oil price movements have a direct impact in the economy as it "increases unemployment and inflation, and decreases economic growth" (Ural, 2016). These impacts can be felt at the elementary level, as oil prices have risen, "business costs have risen" as a direct result (Pirog, 2005).…”