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Forecasting the prices of crude oil using the predictor, economic and combined constraints

Author

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  • Yi, Yongsheng
  • Ma, Feng
  • Zhang, Yaojie
  • Huang, Dengshi
Abstract
In this article, we investigate the predictive power of single predictors with regard to oil prices, using several constrained approaches that contain predictor-related, parameter-related and combined constraints. Based on these approaches, we obtain several noteworthy findings. First, the predictive power of several predictors can be significantly improved under a predictor-related constraint. Second, the predictive ability of most predictors can be improved using parameter-related constraints, but those improvements are not large. Third, combining the two types of constraints can achieve a remarkably better performance in forecasting oil price returns than an individual strategy both in terms of the number of predictors and the magnitude of improvements. Finally, our findings are robustly supported by the success ratio, alternative forecasting windows, other look-back periods and direct comparisons.

Suggested Citation

  • Yi, Yongsheng & Ma, Feng & Zhang, Yaojie & Huang, Dengshi, 2018. "Forecasting the prices of crude oil using the predictor, economic and combined constraints," Economic Modelling, Elsevier, vol. 75(C), pages 237-245.
    • Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:237-245
    DOI: 10.1016/j.econmod.2018.06.020
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    More about this item

    Keywords

    Oil price predictability; Predictor-related constraint; Parameter-related constraint; Combined constraint; Out-of-sample forecasts; JEL classification: C53; E37; Q43; Q47;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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