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A data envelopment analysis-based framework for the relative performance evaluation of competing crude oil prices' volatility forecasting models

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  • Xu, Bing
  • Ouenniche, Jamal
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Abstract

Forecasts of crude oil prices' volatility are important inputs to many decision making processes in application areas such as macroeconomic policy making, risk management, options pricing, and portfolio management. Despite the fact that a large number of forecasting models have been designed to forecast crude oil prices' volatility, so far the relative performance evaluation of competing forecasting models remains an exercise that is unidimensional in nature. To be more specific, most studies tend to use several criteria and their measures to assess the relative performance of these models, but competing models are always ranked by performance measure; thus, leading in general to different rankings for different criteria and to a situation where one cannot make an informed decision as to which model performs best with respect to all criteria under consideration. The purpose of this paper is to propose a single ranking that takes account of several criteria using a Data Envelopment Analysis framework. Our empirical results reveal that the unidimensional rankings for different criteria might differ significantly and that the multidimensional ranking of some models could be substantially different from their unidimensional rankings, which highlights the importance of the proposed performance evaluation tool.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 2 ()
Pages: 576-583

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:2:p:576-583

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Forecasting; Performance criteria; Performance evaluation; Volatility; GARCH; Data Envelopment Analysis (DEA);

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References

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Cited by:
  1. Xiong, Tao & Bao, Yukun & Hu, Zhongyi, 2013. "Beyond one-step-ahead forecasting: Evaluation of alternative multi-step-ahead forecasting models for crude oil prices," Energy Economics, Elsevier, vol. 40(C), pages 405-415.
  2. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Returns to scale and damages to scale on U.S. fossil fuel power plants: Radial and non-radial approaches for DEA environmental assessment," Energy Economics, Elsevier, vol. 34(6), pages 2240-2259.

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