Abstract
Stationary GARCH-MIDAS models encounter challenges in effectively capturing the dynamic impact of realized volatility on crude oil price volatility. This study introduces a novel time-varying parameter GARCH-MIDAS (TVP-GARCH-MIDAS) model to address these challenges and intricately capture the evolving dynamics between variables. The empirical results underscore the superior precision of the TVP-GARCH-MIDAS model in reflecting the influence of realized volatility on crude oil price volatility over time. In comparison to the stationary GARCH-MIDAS and MS-GARCH-MIDAS models, the proposed model exhibits outstanding out-of-sample forecasting performance and has excellent economic significance. This study provides valuable insights for investors and policy-makers, supporting better risk management and more effective investment strategy formulation.
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