Jumps and Long Memory Volatility Property in Daily Crude Oil Prices: Case of the Dubai Oil

Jumps and Long Memory Volatility Property in Daily Crude Oil Prices: Case of the Dubai Oil

This paper considers the dynamic evolution of the crude oil prices by using the daily Dubai oil data. In particular, this paper investigates the jumps and the long memory volatility property, which have led the unstable path and the volatility persistence in the oil prices. First, this paper documents statistical evidence for long memory property in the volatility process of the daily oil price returns by using the FIGARCH model. This paper then finds that there exit significant jumps in the conditional mean process of the oil price returns. Hence, this paper relies on a normal mixture distribution that allows for Bernoulli jumps in the process of the daily oil price returns. The results of this paper find that the daily oil price returns contain the long memory property in the volatility process and that a considerable part of the long memory volatility property is attributed to the jumps inducing higher long memory parameters.

This paper considers the dynamic evolution of the crude oil prices by using the daily Dubai oil data. In particular, this paper investigates the jumps and the long memory volatility property, which have led the unstable path and the volatility persistence in the oil prices. First, this paper documents statistical evidence for long memory property in the volatility process of the daily oil price returns by using the FIGARCH model. This paper then finds that there exit significant jumps in the conditional mean process of the oil price returns. Hence, this paper relies on a normal mixture distribution that allows for Bernoulli jumps in the process of the daily oil price returns. The results of this paper find that the daily oil price returns contain the long memory property in the volatility process and that a considerable part of the long memory volatility property is attributed to the jumps inducing higher long memory parameters.