From research: Investors’ fear and oil price volatility

Can investors’ fear predict oil price volatility? Crude oil is one of the most important and volatile commodities. In a paper published by dr. P. Molnár on behalf of VŠE and his team in the Research in International Business and Finance journal, it was explored whether investors’ fear can predict crude oil volatility.

As proxies for investors’ fear were used oil trading volume, oil implied volatility and Google searches for “oil price”. In-sample results confirm statistically significant predictive relationship between investors’ fear and oil price volatility. However, the out-of-sample results show that augmenting volatility models with used proxies does not improve volatility forecasts.

The paper shows that even though there is a statistically significant relationship between investors’ fear and oil volatility, for practical purposes of volatility forecasting, this relationship is not strong enough to improve volatility models.

Read further about volatility forecasting and models related to crude oil price volatility at: https://www.sciencedirect.com/science/article/pii/S0275531924001466