Have the predictability of oil changed during the COVID-19 pandemic: Evidence from international stock markets

Abstract

The COVID-19 has undoubtfully brought fierce shocks to the real economic activities, financial market and public lives. Under this special condition, this study explores whether the predictability of crude oil futures information has changed before and during the COVID-19 pandemic for 19 international stock markets. From an in-sample perspective, we find that the crude oil futures RV can significantly affect future stock volatility for each equity index except SSEC. Moreover, the out-of-sample results from statistic and economic perspective reveal that crude oil futures RV is a more efficient predictor during the COVID-19 pandemic compared with the pre-crisis period. Furthermore, we find that the predictability of crude oil futures information is stronger from March to May 2020, when the epidemic is seriously prevailing. The empirical results from alternative evaluation method, recursive window method, alternative realized measures, controlling VIX and the seasonal effect, asymmetric forecasting window and different testing windows are robust and consistent. Our findings could offer novel and significant policy and practical implications.

Keywords: COVID-19 pandemic; Cross-market transmission; Crude oil futures; Realized volatility forecasting; Stock market.

Fig. 1

VIX and OVX.

Fig. 2

Comparing and Testing window for S&P 500 index.

Fig. 3

Realized volatility of each equity index and crude oil futures.

Fig. 4

The CumSFE of European stock markets.

Fig. 5

The CumSFE of American stock markets.

Fig. 6

The CumSFE of Asian stock markets.

Fig. 7

The newly reported daily cases of 7 European countries.

Fig. 8

The newly reported daily cases of 4 American countries.

Fig. 9

The newly reported daily cases of 6 Asian countries.