Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets
AbstractThe predictive accuracy of various econometric models, including random walks, vector-autoregressive and vector-error-correction models, are investigated using daily futures prices of four commodities (the S&P 500 index, treasury bonds, gold, and crude oil). All models are estimated using a rolling-window approach, and evaluated by both in-sample and out-of-sample performance measures. The criteria considered include system criteria, where we evaluate multiequation forecasting models, and univariate forecast-accuracy criteria. The five univariate criteria are root mean square error (RMSE), mean absolute deviation (MAD), mean absolute percentage error (MAPE), confusion matrix (CM), and confusion rate (CR). The five system criteria used include the trace of second-moment matrix of the forecast-errors matrix (TMSE), the trace of second-moment matrix of percentage-forecast errors (TMAPE), the generalized forecast-error second-moment matrix (GFESM), and a trading-rule profit criterion (TPC) based on a maximum-spread trading strategy. An in-sample criterion, the mean Schwarz information criteria (MSIC), is also computed. Our results suggest that error-correction models perform better in shorter forecast horizons, when models are compared based on quadratic loss measures and confusion matrices. However, the error-correction models which we consider perform better at all forecast horizons (one to five steps ahead) when models are compared based on a profit-maximization loss function. Further, our error-correction model, where the error-correction term is constructed according to a cost-of-carry equilibrium condition, outperforms our alternative error-correction model, which uses the price spreads as the error-correction term.
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Bibliographic InfoArticle provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.
Volume (Year): 2 (1998)
Issue (Month): 4 (January)
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Web page: http://www.degruyter.com
Other versions of this item:
- Zeng, T. & Swanson, N.R., 1997. "Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets," Papers 9-97-4, Pennsylvania State - Department of Economics.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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- Van Bellegem, Sebastien & von Sachs, Rainer, 2004. "Forecasting economic time series with unconditional time-varying variance," International Journal of Forecasting, Elsevier, vol. 20(4), pages 611-627.
- Giliola Frey & Matteo Manera & Anil Markandya & Elisa Scarpa, 2009. "Econometric Models for Oil Price Forecasting: A Critical Survey," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(1), pages 29-44, 04.
- Andrea Bastianin & Matteo Manera & Anil Markandya & Elisa Scarpa, 2011. "Oil Price Forecast Evaluation with Flexible Loss Functions," Working Papers 2011.91, Fondazione Eni Enrico Mattei.
- Batchelor, Roy & Alizadeh, Amir & Visvikis, Ilias, 2007. "Forecasting spot and forward prices in the international freight market," International Journal of Forecasting, Elsevier, vol. 23(1), pages 101-114.
- Claudio Dicembrino & Pasquale Lucio Scandizzo, 2012. "The Fundamental and Speculative Components of the Oil Spot Price: A Real Option Value Approach," CEIS Research Paper 229, Tor Vergata University, CEIS, revised 18 Apr 2012.
- Matteo Manera & Chiara Longo & Anil Markandya & Elisa Scarpa, 2007. "Evaluating the Empirical Performance of Alternative Econometric Models for Oil Price Forecasting," Working Papers 2007.4, Fondazione Eni Enrico Mattei.
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