Forecasting Volatility of OPEC Oil Prices Using EGARCH and ARMA-GARCH Models

Abstract

Some time series are characterized by their great volatility over time, especially time series related to the movement of the economy, and those related to the change in stock prices or the movement of financial transactions and stock markets, which are characterized by being non- stationary over time due to the change in the behavior of observations, making them suffer from the problem of Heteroscedasticity . The paper aims to building the best model to predict the future fluctuations in the daily OPEC oil price by applying different number of conditional autoregressive Heteroscedasticity models such as GARCH , EGARCH and ARMA-GARCH models , when errors follow Student's-t distribution, the results shows that the best model for predicting OPEC oil prices fluctuations is EGARCH(1,1), based on the AIC, SIC, and H-QIC.