TY - JOUR T1 - The Impact of Volatility on Returns Models: <em>The Case of Crude Oil</em> JF - The Journal of Wealth Management SP - 97 LP - 106 DO - 10.3905/jwm.2018.21.2.097 VL - 21 IS - 2 AU - Haim A. Mozes Y1 - 2018/07/31 UR - https://pm-research.com/content/21/2/97.abstract N2 - This article demonstrates that a static model of crude oil price movements, in which the various predictive variables always have the same weights, is not the ideal approach to model crude oil prices. Rather, investors looking to invest in crude oil need to understand how volatility affects the extent to which the various predictive variables matter for crude oil prices during their forecast horizon. Specifically, the relationships between crude oil returns and crude oil production and between crude oil returns and crude oil price momentum are a function of oil price volatility; the higher crude oil price volatility, the more negative the relationships between crude oil returns and production and between crude oil returns and price momentum. In addition, the higher crude oil prices, the more negatively crude oil returns are related to changes in crude oil volatility. One conclusion is that, although production, price momentum, and volatility all matter for crude oil prices, they matter differently at different times. A second conclusion is that, because there is a greater ability to forecast large moves in crude oil prices when volatility is higher, it is sensible for investors to be more active in crude oil markets when volatility is higher. Extrapolating from the results reported for crude oil, one would expect fundamental and technical data to have greater absolute effects on returns for industrial metals, agricultural products, and other commodity markets when volatility is high. It follows that traders should be more active in these markets when volatility is higher.TOPICS: Commodities, performance measurement ER -