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Podcast: Ronn on using a financial-economics approach to forecast crude oil spot prices

Professor of Finance talks about using equity, index and crude-oil options to forecast spot prices

Ehud Ronn is Professor of Finance at the University of Texas at Austin. In this podcast he talks about his latest research into forecasting oil prices by using equity, commodity and market options to infer idiosyncratic variances for individual oil stocks and forward-looking betas for oil futures contracts.
These signals, taken alongside other forward-looking measures, such as the Chicago Board Options Exchange’s (CBOE’s) Volatility Index (VIX) and the CBOE S&P500 Implied Correlation Index (ICJ), provide the “Message from Markets,” says Ronn.
By using both historical and implied data, Ronn is able to calibrate term structures of equity betas and idiosyncratic variance. For example, the research identifies periods when stocks' idiosyncratic variance tends to drop ahead of a systemic crisis. Similarly, a rise in idiosyncratic variance during a crisis tends to signal the end of the crisis is nearing.
Regarding oil prices, Ronn’s method results in price forecasts that are expressed in terms of the futures prices for the corresponding maturity plus or minus a risk differential.
Ronn will be presenting this research at Energy Risk USA in Houston on Wednesday May 15. Energy Risk USA runs between May 13 and 16, 2019.