“…In addition to extracting the common factors among variables, forecast combination is another efficient manner to integrate different information in individual variables. Following the related studies (see, e.g., Liu & Wang,
2021; Rapach et al,
2010; Zhang, Wang, et al,
2021; Zhang, Luo, et al,
2022), we combine the volatility forecasts from individual models to generate combination forecasts, which is given as
where
and
are the combination and individual forecasts of volatility at month t + 1, respectively,
is the ex ante estimated weight on
, and N is the total number of predictive models with individual fossil energy returns.…”