Study On The Factors Influencing Crude Oil Volatility Using GARCH-MIDAS Model

Energy is the sustenance of industry and the lifeline of the national economy.At present,China’s new energy development is still in its infancy Traditional fossil energies still play a leading role in economic construction,with oil and natural gas a top priority.Crude oil prices affect not only the development of related domestic oil companies,but also the development of the national economy Accurately understanding and forecasting crude oil volatility is therefore of great importance to industry decision makers and financial market participants.In this thesis,the author examined the major factors that affect international crude oil price fluctuations from prior literature,and selected five factors for comparative analysis by screening analysis.They are CPI,IPI,Global Drilling Rig Volume,EPU and GPR.Based on the long-term low-frequency variables above,we select WTI crude oil index as short-term high-frequency variables and model each using the GARCH-MIDAS model.To analyze the impact of each long-term low-frequency index on WTI crude oil volatility,the author analyzed the long-term low-frequency index separately.Through empirical analysis,it is found that:(1)During relatively stable cycles of international WTI oil price fluctuations,the GARCH-MIDAS model can accurately predict oil volatility.The model can predict trends during periods of high volatility in international WTI crude oil prices,and volatility predictions differ from actual values.(2)Comparing the two macroeconomic data selected for this work,CPI and IPI show similar trends in influencing WTI crude oil,but the impact of IPI is greater.(3)Compared with EPU and GPR,the impact of EPU is more far-reaching,while the GPR is based on specific geopolitical events,and its index fluctuation is later than the huge fluctuation of WTI international crude oil.The reaction of GPR will be late.(4)The model in which Global Drilling Rig Volume is the GARCH-MIDAS model,which has excellent overall performance in this thesis.It has the lowest overall loss function and is the most sensitive to changes in WTI’s international oil prices.Finally,based on the conclusions of this study,this thesis provides the advice:(1)From the policy perspective,China needs to strengthen its influence on international crude oil prices and seek opportunities for international cooperation with its own oil enterprises.(2)Oil exploration companies can rely on this research to strengthen their investment plans in the face of large fluctuations in oil prices.After establishing relevant hedging departments with relevant experts,they can use GARCH-MIDAS models and industry data to properly analyze market conditions,assess market developments,determine investment directions and build a diversified investment portfolio(3)Relevant investors in the crude oil market can refer to the methods in this thesis to describe long-term and short-term volatility models and forecast future crude oil market volatility.At the same time,more rational indicators are required to predict international oil price movements in different oil price bands.