E-Mini Crude Oil Futures Volatility Forecast (17/10/2010)

The latest prices achieved by the E-Mini Crude Oil Futures contracts completely changed the layout of the TGARCH volatility.

Clearly, the conditional standard deviation is now much more stable and reflects the sideways fluctuations that this market experienced. In this case the asymmetric effect of volatility is absolutely cancelled and such hypothesis is manifestly represented by the chart on the left where drops in the volatility occurred when the market was in a short-term downtrend. This is not surprising though. In the past, the crude oil market always had an inverted leverage effect and the asymmetry of volatility fluctuations was equally distributed between up and down trends.

Nevertheless, the E-Mini Crude Oil Futures market confirms its uptrend (most probably due to the season effect of oil which usually peaks in October and then decreases until March) and that is why is important looking at changes in the TGARCH volatility because a break out of the conditional standard deviation up or down would immediately signal the beginning of a new trend. According to the forecast and to the volatility estimation a down trend should be expected by investors soon.

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