Forecasting volatility of crude oil prices using box-jenkins's autoregressive moving average: Evidence from Indian chemical industry

Abstract

The current paper deals with to forecast volatility in crude oil prices in Indian economy. In the current study volatility is measured through change in monthly crude oil prices per barrel. The monthly data of crude oil price have taken from January 1995 to May, 2017. The different unit root tests are applied to test check change in crude oil price series is stationary or non stationary. Box-Jenkins's Autoregressive Moving Average of Box-Jenkins methodology has been used for developing a forecasting model. Minimum Akaike Information Criteria (AIC) has been opted to arrive at fit good ARMA model. According to this criteria (4, 3)(0,0) was observed as one of the best model to predict the volatility in future crude oil prices. Forecasted volatility in prices may be utilized for calculating future spot price and hedging future risk. Moreover, forecasted prices volatility of crude oil will also beneficial to oil companies, policy makers for formulating different economic policies and taking some crucial economic decision.