Volatility Forecasting of Crude Oil, Gold, and Silver Futures: A Case of Pakistan Mercantile Exchange

Abstract

The volatility of commodity prices has been a topic of interest for researchers and investors for decades. In recent years, the prices of key commodities have shown significant fluctuations, causing challenges for market participants to make informed investment decisions. Therefore, this paper provides an understanding of forecasting and modeling the volatility of commodity futures in the Pakistan Mercantile Exchange (PMEX) using GARCH and ARIMA models. The study aims to analyze and predict the volatility of three key commodities, namely Gold, Silver, and Crude Oil, and to compare the performance of the two models in forecasting their future prices. The study uses daily time-series data from 2010 to 2021 and finds that the prices of Gold and Crude Oil futures exhibit asymmetrical effects on their volatilities, while silver futures show stability over time. The results are useful for potential investors, economic agents, managers, financial researchers, and policymakers to analyze the volatility of commodity futures in the market. This will also help the investors to diversify their investments by analyzing the variation in such commodities in the international markets.