Analysis and Modeling of NYSE Arca Oil & Gas Stock Index Returns

Keywords: returns , volatility , Garch model , stock index , prediction


  • Violeta Duță, PhD student, Affiliation: Bucharest University of Economic Studies, Bucharest, Romania.
Pages:  48 : 62

Through this study we have analyzed and modeled the returns of the NYSE ARCA OIL & GAS stock exchange index (symbol XOI). This index, previously called the AMEX Oil Index, comprises 20 of the most important oil companies operating in the oil industry. For a better overview, we have presented the factors that influence the price of oil and the effects of lowering its price on oil companies and on the economy of oil exporting states. The study was conducted between August 1983 and April 2017 on a daily frequency of data. In trying to identify the most appropriate predictive model for 10 periods, we tested several ARIMA, ARCH and GARCH models. Based on the AIC criterion, we selected the ARMA (2,1) - GARCH (1,1) model, which we predicted for the next 10 periods, the series of returns and the conditional volatility of the studied index. Predicted conditional volatility indicates a slight increase for the 10 periods of time, while the predicted series of returns evolve downward. The study thus confirmed the theoretical hypothesis that increased volatility in stock markets occurs when price declines are recorded, the impact of negative news on stock markets being stronger than positive news.

JEL classification:  C32, C53, Q43