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A fear index to predict oil futures returns

Abstract : This paper evaluates the predictability of WTI light sweet crude oil futures by using the variance risk premium, i.e. the difference between model-free measures of implied and realized volatilities. Additional regressors known for their ability to explain crude oil futures prices are also considered, capturing macroeconomic, financial and oil-specific influences. The results indicate that the explanatory power of the (negative) variance risk premium on oil excess returns is particularly strong (up to 25% for the adjusted R-squared across our regressions). It complements other financial (e.g. default spread) and oil-specific (e.g. US oil stocks) factors highlighted in previous literature.
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https://hal-amu.archives-ouvertes.fr/hal-01463111
Contributor : Patrice Cacciuttolo <>
Submitted on : Thursday, February 9, 2017 - 1:41:56 PM
Last modification on : Wednesday, August 5, 2020 - 3:16:04 AM

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Julien Chevallier, Benoît Sévi. A fear index to predict oil futures returns. Energy Studies Review, DeGroote School of Business, McMaster University, 2014, 20 (3), pp.1--17. ⟨10.15173/esr.v20i3.552⟩. ⟨hal-01463111⟩

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