Please use this identifier to cite or link to this item: https://doi.org/10.1080/1351847032000082808
Title: Basis variations and regime shifts in the oil futures market
Authors: Fong, W.M. 
See, K.H.
Keywords: Conditional volatility
Crude oil futures
Forecasting
GARCH persistence
Regime switching
Issue Date: 2003
Citation: Fong, W.M.,See, K.H. (2003). Basis variations and regime shifts in the oil futures market. European Journal of Finance 9 (5) : 499-513. ScholarBank@NUS Repository. https://doi.org/10.1080/1351847032000082808
Abstract: The conditional volatility of crude oil futures returns is modelled as a regime switching process. The model features transition probabilities that are functions of the basis. Consistent with the theory of storage, in volatile periods, an increase in backwardation is associated with an increase in the likellihood of switching to or remaining in the high-volatility state. Conditional on regimes, GARCH persistence is significantly reduced. Out-of-sample tests show that incorporating regime shifts improves the accuracy of short-term volatility forecasts.
Source Title: European Journal of Finance
URI: http://scholarbank.nus.edu.sg/handle/10635/44518
ISSN: 1351847X
DOI: 10.1080/1351847032000082808
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