Newspaper-based equity uncertainty or implied volatility index: new evidence from oil market volatility predictability

ABSTRACT

This article investigates two equity-oriented market volatility measures, newspaper-based equity market volatility (EMV) index and COBE-implied volatility index (VIX), which contain more predictive contents for the oil futures market based on a Markov regime-switching method. We find that both EMV and VIX contain valuable content for the oil market. Interestingly, the predictive performance of the model containing both EMV and regime switching is better than that of the model containing VIX and regime switching, further showing that EMV can be more powerful than VIX for oil futures volatility when considering regime switching. Our study tries to provide new insight into the oil futures market.

KEYWORDS:

• Oil futures market
• newspaper-based equity market volatility
• COBE-implied volatility index
• Markov regime switching
• GARCH-MIDAS model

JEL CLASSIFICATION:

• C53
• B41
• C14

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ https://www.eia.gov/dnav/pet/pet_pri_fut_s1_d.htm.

² For more details, we can refer to http://www.policyuncertainty.com/EMV_monthly.html.

³ Due to the space limitation, the results of the Direction-of-Change (DoC) test and different market conditions are presented in the Internet Appendix.