Forecasting Volatility of the U.S. Oil Market

We examine the information content of the CBOE Crude Oil Volatility Index (OVX) when forecasting realized volatility in the WTI futures market. Additionally, we study whether other market variables, such as volume, open interest, daily returns, bid-ask spread and the slope of the futures curve, contains predictive power beyond what is embedded in the implied volatility. In out-of-sample forecasting we find that econometric models based on realized volatility can be improved by including implied volatility and other variables. Our results show that including implied volatility significantly improves daily and weekly volatility forecasts, while including other market variables significantly improves daily, weekly and monthly volatility forecasts