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Do directional predictions of US gasoline prices reveal asymmetries?

Author

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  • Hamid Baghestani

    () (American University of Sharjah)

  • Jorg Bley

    () (American University of Sharjah)

Abstract

This study employs a directional forecasting approach to re-examine the possible “rockets and feathers” effect, using monthly crude oil and US retail gasoline prices for 1986–2018. We show that, for 1986–1999 (2000–2018), changes in crude oil prices accurately predict directional change in gasoline prices under symmetric (asymmetric) loss. This means that our results lend support to the “rockets and feathers” effect only for 2000–2018. For this period, upward moves in oil prices predict upward moves in gasoline prices up to three months ahead with a reasonably high accuracy rate (ranging from 0.70 to 0.79), while downward moves in oil prices predict downward moves in gasoline prices with a low accuracy rate (ranging from 0.48 to 0.58). These predictions, while of value to a user who assigns high (low) cost to incorrect upward (downward) moves in gasoline prices, lend support to the “rockets and feathers” effect.

Suggested Citation

  • Hamid Baghestani & Jorg Bley, 2020. "Do directional predictions of US gasoline prices reveal asymmetries?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(2), pages 348-360, April.
  • Handle: RePEc:spr:jecfin:v:44:y:2020:i:2:d:10.1007_s12197-019-09496-2
    DOI: 10.1007/s12197-019-09496-2
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    More about this item

    Keywords

    Energy prices; Rockets and feathers; Directional forecasting; Asymmetric loss;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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