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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cheong, Chin Wen, 2009. "Modeling and forecasting crude oil markets using ARCH-type models," Energy Policy, Elsevier, vol. 37(6), pages 2346-2355, June.
- Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo, 2008. "Short-term predictability of crude oil markets: A detrended fluctuation analysis approach," Energy Economics, Elsevier, vol. 30(5), pages 2645-2656, September.
- Artem Prokhorov, 2008. "Nonlinear dynamics and chaos theory in economics: a historical perspective (in Russian)," Quantile, Quantile, issue 4, pages 79-92, March.
- Kyongwook Choi & Shawkat Hammoudeh, 2009. "Long Memory in Oil and Refined Products Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 97-116.
- Salisu, Afees A. & Fasanya, Ismail O., 2013. "Modelling oil price volatility with structural breaks," Energy Policy, Elsevier, vol. 52(C), pages 554-562.
- Farzanegan, Mohammad Reza & Markwardt, Gunther, 2009.
"The effects of oil price shocks on the Iranian economy,"
Elsevier, vol. 31(1), pages 134-151, January.
- Farzanegan, Mohammad Reza & Markwardt, Gunther, 2008. "The effects of oil price shocks on the Iranian economy," Dresden Discussion Paper Series in Economics 15/08, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Andrew W. Lo, A. Craig MacKinlay, 1988.
"Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test,"
Review of Financial Studies,
Society for Financial Studies, vol. 1(1), pages 41-66.
- Andrew W. Lo & A. Craig MacKinlay, 1989. "Stock Market Prices Do Not Follow Random Walks: Evidence From a Simple Specification Test," NBER Working Papers 2168, National Bureau of Economic Research, Inc.
- Tom Doan, . "VRATIO: RATS procedure to implement variance ratio unit root test procedure," Statistical Software Components RTS00231, Boston College Department of Economics.
- Arouri, Mohamed El Hédi & Lahiani, Amine & Lévy, Aldo & Nguyen, Duc Khuong, 2012.
"Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models,"
Elsevier, vol. 34(1), pages 283-293.
- Mohamed El Hedi Arouri & Amine Lahiani & Khuong Nguyen Duc, 2010. "Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models," Working Papers 13, Development and Policies Research Center (DEPOCEN), Vietnam.
- Mohamed El Hedi Arouri & Duc Khuong Nguyen & Amine Lahiani, 2010. "Forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models," Working Papers hal-00507831, HAL.
- Alvarez-Ramirez, Jose & Alvarez, Jesus & Solis, Ricardo, 2010. "Crude oil market efficiency and modeling: Insights from the multiscaling autocorrelation pattern," Energy Economics, Elsevier, vol. 32(5), pages 993-1000, September.
- Mehrara, Mohsen & Oskoui, Kamran Niki, 2007. "The sources of macroeconomic fluctuations in oil exporting countries: A comparative study," Economic Modelling, Elsevier, vol. 24(3), pages 365-379, May.
- Akbar Komijani & Nadiya Gandali Alikhani & Esmaeil Naderi, 2013.
"The Long-run and Short-run Effects of Crude Oil Price on Methanol Market in Iran,"
International Journal of Energy Economics and Policy,
Econjournals, vol. 3(1), pages 43-50.
- Komijani, Akbar & Gandali Alikhani, Nadiya & Naderi, Esmaeil, 2012. "The Long-run and Short-run Effects of Crude Oil Price on Methanol Market in Iran," MPRA Paper 45975, University Library of Munich, Germany.
- Charles, Amélie & Darné, Olivier, 2009. "The efficiency of the crude oil markets: Evidence from variance ratio tests," Energy Policy, Elsevier, vol. 37(11), pages 4267-4272, November.
- Wei, Yu & Wang, Yudong & Huang, Dengshi, 2010. "Forecasting crude oil market volatility: Further evidence using GARCH-class models," Energy Economics, Elsevier, vol. 32(6), pages 1477-1484, November.
- Mohammadi, Hassan & Su, Lixian, 2010. "International evidence on crude oil price dynamics: Applications of ARIMA-GARCH models," Energy Economics, Elsevier, vol. 32(5), pages 1001-1008, September.
- Nese Erbil, 2011. "Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?," IMF Working Papers 11/171, International Monetary Fund.
- Kang, Sang Hoon & Cheong, Chongcheul & Yoon, Seong-Min, 2011. "Structural changes and volatility transmission in crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4317-4324.
- Vo, Minh, 2011. "Oil and stock market volatility: A multivariate stochastic volatility perspective," Energy Economics, Elsevier, vol. 33(5), pages 956-965, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.