A Markov regime-switching model for crude-oil market fluctuations

Subject Areas : Financial engineering

mohammadreza Rostami ¹ , maryam naghavipour ² , maryam Moghaddasbayat ³

1 - Assistant Prof, Faculty of Social Sciences and Economics , Alzahra University, Tehran, Iran
2 - management department of Faculty of Social Sciences and Economics , Alzahra University, Tehran, Iran
3 - PHD of Econometrics, Faculty of Social Sciences and Economics , Alzahra University, Tehran, Iran

Received: 2017-11-11 Accepted : 2017-12-31 Published : 2018-06-22

Keywords: Markov Switching, MS-GARCH pattern, oil price forecast, oil price fluctuations,

Abstract :

According to the findings of financial econometric researches, oil prices as one of the most important macroeconomic variables affect financial markets and economies of oil exporting countries. In this study, the price of OPEC oil basket has been used with daily frequency. The period under review is from August 3, 2013 to December 26, 2016. The course includes various developments such as unrest and war in the Middle East, a sharp and unexpected decline in oil prices for reasons such as a decline in demand, an agreement 27, and the agreement of OPEC members to reduce oil production in order to increase oil prices, is located. Initial studies indicate cluster fluctuations, ie, independent and uniform distribution characteristics and variance consistency. The Breusch Godfrey test confirms the effects of ARCH and GARCH. Also, a generalized test with the estimation of kernel density based on the Monte Carlo rule indicates Parson’s weight on the effects of ARCH in the variable. The results of the study of oil price fluctuations using the MS-GARCH model of single and multiple regimes indicate that the three regimes model is suitable for explaining the behavior of the variable in the reviewed period.