Abstract
This paper uses the newspaper-based Equity Market Volatility (EMV) trackers to forecast crude oil market volatility. We focus on three specific EMV trackers, namely, overall EMV (OEMV), commodity EMV (CEMV), and petroleum EMV (PEMV). We find that all the EMV trackers can improve the forecasting performance of crude oil market volatility. CEMV is better than OEMV, and PEMV is the best. Furthermore, the PEMV tracker can beat many other popular uncertainty predictors. The predictive ability of the PEMV tracker is consistent in a variety of robustness checks and extensions. We demonstrate that the predictability of PEMV stems from not only the volatility index (VIX), which is well-recognized for forecasting crude oil market volatility, but also the valuable information related to petroleum. In addition, the machine learning evidence suggests that PEMV is more useful than OEMV, CEMV, and other category-specific EMV trackers. Finally, the PEMV tracker can help mean-variance investors realize the largest economic gain in an asset allocation application.
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