Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/125922
Authors: 
Yin, Libo
Zhou, Yimin
Year of Publication: 
2016
Series/Report no.: 
Economics Discussion Papers 2016-2
Abstract: 
This paper explores the role of speculation and economy fundamentals in the oil market using a two-component GARCH-MIDAS model. Particularly, the authors highlight the different role played by changing oil shocks on short-term and long-term components in terms of oil market volatility. The results show that the global demand shock is the only one factor found to be positive and significantly increasing long- or short-term oil volatility in the full sample. This is consistent with a classic host advocating that global demand dominates the oil market. However, impacts of other oil shocks are significantly weakened and even reversed since the year of 2004. In particular, the speculative demand shock plays a role in stabilizing long-term oil volatility during the post-2004 period. The results also suggest the existence of asymmetric impacts on the short-term oil volatility, particularly for shocks from oil supply, oil specific and oil speculative demand.
Subjects: 
oil shocks
economy fundamentals
speculation
long/short-term oil volatility
GARCH-MIDAS model
JEL: 
Q43
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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