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Forecasting the price of crude oil via convenience yield predictions

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  • Knetsch, Thomas A.

Abstract

The paper develops an oil price forecasting technique which is based on the present value model of rational commodity pricing. The approach suggests shifting the forecasting problem to the marginal convenience yield which can be derived from the cost-of-carry relationship. In a recursive out-of-sample analysis, forecast accuracy at horizons within one year is checked by the root mean squared error as well as the mean error and the frequency of a correct direction-of-change prediction. For all criteria employed, the proposed forecasting tool outperforms the approach of using futures prices as direct predictors of future spot prices. Vis-à-vis the random-walk model, it does not significantly improve forecast accuracy but provides valuable statements on the direction of change. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,12.

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Date of creation: 2006
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Handle: RePEc:zbw:bubdp1:4353

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Keywords: oil price forecasts; rational commodity pricing; convenience yield; single-equation model;

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References

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  1. Koetter, M. & Bos, J.W.B. & Heid, F. & Kolari, J.W. & Kool, C.J.M. & Porath, D., 2007. "Accounting for distress in bank mergers," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3200-3217, October.
  2. John Y. Campbell & Jens Hilscher & Jan Szilagyi, 2008. "In Search of Distress Risk," Journal of Finance, American Finance Association, vol. 63(6), pages 2899-2939, December.
  3. Falko Fecht & Kevin X. D. Huang & Antoine Martin, 2004. "Financial intermediaries, markets, and growth," Working Papers 04-24, Federal Reserve Bank of Philadelphia.
  4. Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank, Research Centre.
  5. Weiss, Andrew A., 1991. "Multi-step estimation and forecasting in dynamic models," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 135-149.
  6. von Kalckreuth, Ulf, 2005. "A "wreckers theory" of financial distress," Discussion Paper Series 1: Economic Studies 2005,40, Deutsche Bundesbank, Research Centre.
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Cited by:
  1. Yannick Le Pen & Benoît Sévi, 2011. "Macro factors in oil futures returns," Economie Internationale, CEPII research center, issue 126-127, pages 13-38.
  2. Christiane Baumeister & Lutz Kilian & Xiaoqing Zhou, 2013. "Are Product Spreads Useful for Forecasting? An Empirical Evaluation of the Verleger Hypothesis," Working Papers 13-25, Bank of Canada.
  3. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "Nonlinear expectations in speculative markets - Evidence from the ECB survey of professional forecasters," Discussion Papers of Business and Economics 1/2012, Department of Business and Economics, University of Southern Denmark.
  4. 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.
  5. Sévi, Benoît & Chevallier, Julien, 2013. "A Fear Index to Predict Oil Futures Returns," Economics Papers from University Paris Dauphine 123456789/11714, Paris Dauphine University.
  6. Stefan Reitz & Jan C. Rülke & Georg Stadtmann, 2010. "Regressive Oil Price Expectations Toward More Fundamental Values of the Oil Price," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(4), pages 454-466, August.
  7. Baumeister, Christiane & Kilian, Lutz, 2013. "Forecasting the Real Price of Oil in a Changing World: A Forecast Combination Approach," CEPR Discussion Papers 9569, C.E.P.R. Discussion Papers.
  8. Alquist, Ron & Kilian, Lutz & Vigfusson, Robert J., 2011. "Forecasting the Price of Oil," CEPR Discussion Papers 8388, C.E.P.R. Discussion Papers.
  9. Reitz, Stefan & Rülke, Jan & Stadtmann, Georg, 2012. "Nonlinear Expectations in Speculative Markets," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62045, Verein für Socialpolitik / German Economic Association.
  10. Carlos Caceres & Leandro Medina, 2012. "Measures of Fiscal Risk in Hydrocarbon-Exporting Countries," IMF Working Papers 12/260, International Monetary Fund.
  11. repec:wyi:wpaper:002040 is not listed on IDEAS
  12. Kuper, Gerard H., 2012. "Inventories and upstream gasoline price dynamics," Energy Economics, Elsevier, vol. 34(1), pages 208-214.

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