#3170. Forecasting the volatility of EUA futures with economic policy uncertainty using the GARCH-MIDAS model

September 2026publication date
Proposal available till 11-05-2025
4 total number of authors per manuscript0 $

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Journal’s subject area:
Finance;
Management of Technology and Innovation;
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Abstract:
The research investigates the impact of economic policy uncertainty (EPU) on the volatility of European Union (EU) carbon futures prices and whether it has predictive power for the volatility of carbon futures prices. The GARCH-MIDAS model is applied for evaluating the impact of different EPU indexes on the price volatility of European Union Allowance (EUA) futures. The research compares the predictive power for the volatility of the two GARCH-MIDAS models based on different EPU indexes and six GARCH-type models. The GARCH-MIDAS models outperform GARCH-type models. EPU has noticeable effect on the volatility of EUA futures. The forecast accuracy of the EU EPU index is significantly higher than that of the global EPU index. Using the volatility forecasting methods that GARCH-MIDAS models combine with the EPU index, investors can construct their portfolios to realize economic returns.
Keywords:
Economic policy uncertainty; EUA; Futures; GARCH-MIDAS; Volatility forecasting

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