Risk-Adjusted Forecasts of Oil Prices
This paper documents the existence of a significant forecast error on crude oil futures, particularly evident since the mid-1990s, which is negative on average and displays a non-trivial cyclical component (risk premium). We show that the forecast error on oil futures could have been explained in part by means of real-time US business cycle indicators, such as the degree of utilized capacity in manufacturing. An out-of-the-sample prediction exercise reveals that futures which are adjusted to take into account this time-varying component produce significantly better forecasts than those of the unadjusted futures and random walk, particularly at horizons of more than 6 months.
|Date of creation:||Mar 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.bancaditalia.it
More information through EDIRC
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.:
- Bailey, Warren & Chang, K C, 1993. " Macroeconomic Influences and the Variability of the Commodity Futures Basis," Journal of Finance, American Finance Association, vol. 48(2), pages 555-73, June.
- Gary Gorton & Fumio Hayashi & K. Rouwenhorst, 2007.
"The Fundamentals of Commodity Futures Returns,"
Yale School of Management Working Papers
amz2605, Yale School of Management, revised 01 Oct 2008.
- Carlos Coimbra & Paulo Soares Esteves, 2004.
"Oil prices assumptions in macroeconomic forecasts: should we follow futures market expectations?,"
w200404, Banco de Portugal, Economics and Research Department.
- Carlos Coimbra & Paulo Soares Esteves, 2004. "Oil price assumptions in macroeconomic forecasts: should we follow futures market expectations?," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 28(2), pages 87-106, 06.
- Fama, Eugene F & French, Kenneth R, 1988. " Business Cycles and the Behavior of Metals Prices," Journal of Finance, American Finance Association, vol. 43(5), pages 1075-93, December.
- Finn, Mary G, 2000. "Perfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 400-416, August.
- Moosa, Imad A. & Al-Loughani, Nabeel E., 1994. "Unbiasedness and time varying risk premia in the crude oil futures market," Energy Economics, Elsevier, vol. 16(2), pages 99-105, April.
- Monika Piazzesi & Eric Swanson, 2004.
"Future prices as risk-adjusted forecasts of monetary policy,"
Federal Reserve Bank of San Francisco, issue Mar.
- Piazzesi, Monika & Swanson, Eric T., 2008. "Futures prices as risk-adjusted forecasts of monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 677-691, May.
- Monika Piazzesi & Eric Swanson, 2004. "Futures Prices as Risk-adjusted Forecasts of Monetary Policy," NBER Working Papers 10547, National Bureau of Economic Research, Inc.
- Monika Piazzesi & Eric T. Swanson, 2006. "Futures prices as risk-adjusted forecasts of monetary policy," Working Paper Series 2006-23, Federal Reserve Bank of San Francisco.
- Timothy J. Considine & Donald F. Larson, 2001. "Risk premiums on inventory assets: the case of crude oil and natural gas," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(2), pages 109-126, 02.
- Diebold, Francis X & Mariano, Roberto S, 2002.
"Comparing Predictive Accuracy,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 134-44, January.
- Clark, Todd E. & McCracken, Michael W., 2001.
"Tests of equal forecast accuracy and encompassing for nested models,"
Journal of Econometrics,
Elsevier, vol. 105(1), pages 85-110, November.
- Todd E. Clark & Michael W. McCracken, 2000. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Econometric Society World Congress 2000 Contributed Papers 0319, Econometric Society.
- Todd E. Clark & Michael McCracken, 1999. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Computing in Economics and Finance 1999 1241, Society for Computational Economics.
- Todd E. Clark & Michael W. McCracken, 1999. "Tests of equal forecast accuracy and encompassing for nested models," Research Working Paper 99-11, Federal Reserve Bank of Kansas City.
- Jacob A. Mincer & Victor Zarnowitz, 1969. "The Evaluation of Economic Forecasts," NBER Chapters, in: Economic Forecasts and Expectations: Analysis of Forecasting Behavior and Performance, pages 3-46 National Bureau of Economic Research, Inc.
- Giacomini, Raffaella & White, Halbert, 2003.
"Tests of Conditional Predictive Ability,"
University of California at San Diego, Economics Working Paper Series
qt5jk0j5jh, Department of Economics, UC San Diego.
- Gary Gorton & K. Geert Rouwenhorst, 2004.
"Facts and Fantasies about Commodity Futures,"
NBER Working Papers
10595, National Bureau of Economic Research, Inc.
- Menzie D. Chinn & Michael LeBlanc & Olivier Coibion, 2005. "The Predictive Content of Energy Futures: An Update on Petroleum, Natural Gas, Heating Oil and Gasoline," NBER Working Papers 11033, National Bureau of Economic Research, Inc.
- John Cochrane, 2005.
"Financial Markets and the Real Economy,"
NBER Working Papers
11193, National Bureau of Economic Research, Inc.
- Hansen, Bruce E., 1992.
"Testing for parameter instability in linear models,"
Journal of Policy Modeling,
Elsevier, vol. 14(4), pages 517-533, August.
- Tom Doan, . "STABTEST: RATS procedure to perform Hansen's stability test for OLS," Statistical Software Components RTS00199, Boston College Department of Economics.
- John H. Cochrane & Monika Piazzesi, 2005.
"Bond Risk Premia,"
American Economic Review,
American Economic Association, vol. 95(1), pages 138-160, March.
- Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-30.
- Sergey V. Chernenko, 2004. "The information content of forward and futures prices: market expectations and the price of risk," International Finance Discussion Papers 808, Board of Governors of the Federal Reserve System (U.S.).
- Shaun K. Roache, 2008. "Commodities and the Market Price of Risk," IMF Working Papers 08/221, International Monetary Fund.
- Sanders, Dwight R. & Boris, Keith & Manfredo, Mark, 2004. "Hedgers, funds, and small speculators in the energy futures markets: an analysis of the CFTC's Commitments of Traders reports," Energy Economics, Elsevier, vol. 26(3), pages 425-445, May.
- Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 25(1), pages 23-49, November.
When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_585_06. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.