Estimating volatility persistence in oil prices under structural breaks

Bradley T. Ewing, Farooq Malik

Research output: Contribution to journalArticle

46 Scopus citations

Abstract

Policy makers and financial market participants are interested in knowing how shocks affect the volatility of oil prices over time. We accurately compute the volatility persistence by incorporating endogenously determined structural breaks into a GARCH model. Contrary to previous findings, we find that oil shocks dissipate very quickly but have a strong initial impact. Understanding this behavior is not only important for derivative valuation and hedging decisions but for broader financial markets and the overall economy, for which there are significant consequences.

Original languageEnglish
Pages (from-to)1011-1023
Number of pages13
JournalFinancial Review
Volume45
Issue number4
DOIs
StatePublished - Nov 2010

Keywords

  • G1
  • GARCH
  • ICSS algorithm
  • Oil
  • Structural breaks
  • Volatility

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