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A Hybrid Approach for Forecasting of Oil Prices Volatility

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  • Komijani, Akbar
  • Naderi, Esmaeil
  • Gandali Alikhani, Nadiya

Abstract

This study aims to introduce an ideal model for forecasting crude oil price volatility. For this purpose, the ‘predictability’ hypothesis was tested using the variance ratio test, BDS test and the chaos analysis. Structural analyses were also carried out to identify possible nonlinear patterns in this series. On this basis, Lyapunov exponents confirmed that the return series of crude oil price is chaotic. Moreover, according to the findings, the rate of return series has the long memory property rejecting the efficient market hypothesis and affirming the fractal markets hypothesis. The results of GPH test verified that both the rate of return and volatility series of crude oil price have the long memory property. Besides, according to both MSE and RMSE criteria, wavelet-decomposed data improve the performance of the model significantly. Therefore, a hybrid model was introduced based on the long memory property which uses wavelet decomposed data as the most relevant model.

Suggested Citation

  • Komijani, Akbar & Naderi, Esmaeil & Gandali Alikhani, Nadiya, 2013. "A Hybrid Approach for Forecasting of Oil Prices Volatility," MPRA Paper 44654, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:44654
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    References listed on IDEAS

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    Cited by:

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    2. Zarei, Samira, 2019. "How do Real Exchange Rate Movements Affect the Economic Growth in Iran?," MPRA Paper 99102, University Library of Munich, Germany.
    3. Melike Bildirici & Nilgun Guler Bayazit & Yasemen Ucan, 2020. "Analyzing Crude Oil Prices under the Impact of COVID-19 by Using LSTARGARCHLSTM," Energies, MDPI, vol. 13(11), pages 1-18, June.
    4. Delavari, Majid & Baranpour, Naghmeh & Abdeshahi, Abbas, 2014. "Analyzing the Effect of Real Exchange Rate on Petrochemicals Exporting," MPRA Paper 60360, University Library of Munich, Germany.
    5. Tao Yin & Yiming Wang, 2019. "Predicting the Price of WTI Crude Oil Using ANN and Chaos," Sustainability, MDPI, vol. 11(21), pages 1-14, October.
    6. Zarei, Samira, 2020. "Analyzing the Asymmetric Effects of Inflation and Exchange Rate Misalignments on the Petrochemical Stock index: The Case of Iran," MPRA Paper 99101, University Library of Munich, Germany.

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    More about this item

    Keywords

    Forecasting; Oil Price; Chaos; Wavelet Decomposition; Long Memory;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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