Study On The Forecast Of Volatility Of International Crude Oil Market By Geopolitical Risk Index

Crude oil,as a non-renewable resource,has an inestimable role both in industry and in the process of modern economic development.Oil has been preferred by investors after its financialization,and the fluctuation of crude oil price has also become the focus of scholars' research.In addition,geopolitical risk has been constantly occurring and even growing in recent years.As we all know,the occurrences of geopolitical risk always affect the development of the economy and some fields such as the crude oil market.Therefore,this paper discusses the global geopolitical risk' predictive ability for the international oil volatility,which is of certain significance to provide better crude oil investment strategy for investors and related enterprises.Based on the existing researches and combining theoretical analysis with empirical analysis,this paper aims to summarizes the mechanism of geopolitical risk influencing the oil market and conduct the empirical analysis by GARCH-MIDAS model.A series of research results show that geopolitical risk can predict crude oil volatility and the influence of geopolitical risk on crude oil volatility is greater than the economic uncertainty.This may be that geopolitical risk can affect the fluctuations of crude oil price from the crude oil supply and demand side,increase the transportation costs and change of investor sentiment.In addition,geopolitical risk may affect the volatility of crude oil differently from the respective of oil-importing and oil-exporting countries,thus,we use dynamic model average model to do the analysis.Furthermore,using the dynamic model average method,it is found that the geopolitical risk events in oil-exporting countries can better predict oil volatility than that of oil-importing countries.Besides,the dynamic model average model performs better than some other models in predicting crude oil volatility.