A Hybrid Approach for Forecasting of Oil Prices Volatility
AbstractThis 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 44654.
Date of creation: 04 Jan 2013
Date of revision:
Forecasting; Oil Price; Chaos; Wavelet Decomposition; Long Memory;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
- NEP-ENE-2013-03-16 (Energy Economics)
- NEP-FOR-2013-03-16 (Forecasting)
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