Forecasting EUA futures volatility with geopolitical risk: evidence from GARCH-MIDAS models

IF 7.8 3区 管理学 Q1 MANAGEMENT Review of Managerial Science Pub Date : 2024-01-18 DOI:10.1007/s11846-023-00722-0
Hengzhen Lu, Qiujin Gao, Ling Xiao, Gurjeet Dhesi
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Abstract

This paper examines whether the information contained in geopolitical risk (GPR) can improve the forecasting power of price volatility for carbon futures traded in the EU Emission Trading System. We employ the GARCH-MIDAS model and its extended forms to estimate and forecast the price volatility of carbon futures using the most informative GPR indicators. The models are examined for both statistical and economic significance. According to the results of the Model Confidence Set tests for the full-sample and sub-sample data, we find that the extended model, which accounts for the threat of geopolitical risk, exhibits superior forecasting ability for the full-sample data, while the model that includes drastic changes in geopolitical risk in Phase II and the model that considers serious geopolitical risk in Phase III have the best predictive power. Moreover, all GPR-related variables we use contribute to increasing economic gains. In particular, the threat of geopolitical risk contains valuable information for future EUA futures volatility and can provide the highest economic gains. Therefore, carbon market investors and policymakers should pay great attention to geopolitical risk, especially its threat, in risk and portfolio management.

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利用地缘政治风险预测欧盟农产品期货波动性:GARCH-MIDAS 模型提供的证据
本文研究了地缘政治风险(GPR)所包含的信息能否提高对欧盟排放交易体系中交易的碳期货价格波动的预测能力。我们采用 GARCH-MIDAS 模型及其扩展形式,利用信息量最大的地缘政治风险指标来估计和预测碳期货的价格波动。我们对模型的统计意义和经济意义进行了检验。根据全样本和子样本数据的模型置信度检验结果,我们发现考虑地缘政治风险威胁的扩展模型对全样本数据的预测能力更强,而包含第二阶段地缘政治风险剧烈变化的模型和考虑第三阶段严重地缘政治风险的模型预测能力最强。此外,我们使用的所有与地缘政治风险相关的变量都有助于增加经济收益。尤其是地缘政治风险的威胁包含了未来 EUA 期货波动的宝贵信息,可以带来最高的经济收益。因此,碳市场投资者和政策制定者应在风险和投资组合管理中高度重视地缘政治风险,尤其是其威胁。
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来源期刊
CiteScore
11.30
自引率
14.50%
发文量
86
期刊介绍: Review of Managerial Science (RMS) provides a forum for innovative research from all scientific areas of business administration. The journal publishes original research of high quality and is open to various methodological approaches (analytical modeling, empirical research, experimental work, methodological reasoning etc.). The scope of RMS encompasses – but is not limited to – accounting, auditing, banking, business strategy, corporate governance, entrepreneurship, financial structure and capital markets, health economics, human resources management, information systems, innovation management, insurance, marketing, organization, production and logistics, risk management and taxation. RMS also encourages the submission of papers combining ideas and/or approaches from different areas in an innovative way. Review papers presenting the state of the art of a research area and pointing out new directions for further research are also welcome. The scientific standards of RMS are guaranteed by a rigorous, double-blind peer review process with ad hoc referees and the journal´s internationally composed editorial board.
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