Abstract
By disentangling the effects of the oil-importing and oil-exporting countries, this paper sheds new light on the relationship between crude oil volatility and country specific geopolitical risks using the popular generalized autoregressive conditional heteroskedasticity with mixed data sampling model(GARCH-MIDAS, hereafter) of Engle et al. (2013). We show that crude oil future volatility is more strongly related to the geopolitical risks of oil-importing countries than to that of oil-exporting countries, especially China. The models exploiting this finding lead to significantly better out-of-sample forecast performance and thus have more economic benefit.
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