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- Title
MODELLING VOLATILITY OF PETROLEUM PRODUCTIONS BY USING MARKOV-SWITCHING GARCH MODELS.
- Authors
Duraisamy, Pachiyappan; Alam, Md Shabbir; Uddin, Mohammed Ahmar; Kuppusamy, Alagirisamy; Palanisamy, Manigandan
- Abstract
In this paper, we test the existence of regime changes by using Markov-Switching GARCH model for modeling volatility of the three country petroleum productions, i.e., namely India, Japan, and South Korea. We tested around 32 Markov-Switching GARCH (MSGARCH) models with different regimes (k =1,2,3) for the log- returns of each petroleum productions to test the in-sample analysis of volatility. We compare 32 models for in-sample estimations by using AIC and BIC and select the best fit model for all petroleum production series. Also, the results indicate that the one-day ahead VaR prediction was conducted by the best MSGARCH model. In addition, we test the transition matrix and stable probabilities for MCMC estimation with three regimes. Our results suggest that in most of the cases analysed there are regime changes in the GARCH process. We also find that the MSGARCH model outperforms single regime GARCH model specifications when forecasting the VaR. The results suggest that the use of MSGARCH models may provide accurate VaR forecasts, and hence useful in portfolio optimization and risk management etc.
- Subjects
SOUTH Korea; PETROLEUM production; GARCH model; PORTFOLIO management (Investments); INDUSTRIAL efficiency; REGIME change
- Publication
International Journal of Agricultural & Statistical Sciences, 2022, Vol 18, p1657
- ISSN
0973-1903
- Publication type
Article