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Forecasting crude oil and natural gas spot prices by classification methods

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  • Viviana Fernández

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Abstract

In this article, we forecast crude oil and natural gas spot prices at a daily frequency based on two classification techniques: artificial neural networks (ANN) and support vector machines (SVM). As a benchmark, we utilize an autoregressive integrated moving average (ARIMA) specification. We evaluate out-of-sample forecast based on encompassing tests and mean-squared prediction error (MSPE). We find that at short-time horizons (e.g., 2-4 days), ARIMA tends to outperform both ANN and SVM. However, at longer-time horizons (e.g., 10-20 days), we find that in general ARIMA is encompassed by these two methods, and linear combinations of ANN and SVM forecasts are more accurate than the corresponding individual forecasts. Based on MSPE calculations, we reach similar conclusions: the two classification methods under consideration outperform ARIMA at longer time horizons.

Suggested Citation

  • Viviana Fernández, 2006. "Forecasting crude oil and natural gas spot prices by classification methods," Documentos de Trabajo 229, Centro de Economía Aplicada, Universidad de Chile.
  • Handle: RePEc:edj:ceauch:229
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    6. Tay, Francis E. H. & Cao, Lijuan, 2001. "Application of support vector machines in financial time series forecasting," Omega, Elsevier, vol. 29(4), pages 309-317, August.
    7. Lanza, Alessandro & Manera, Matteo & Giovannini, Massimo, 2005. "Modeling and forecasting cointegrated relationships among heavy oil and product prices," Energy Economics, Elsevier, vol. 27(6), pages 831-848, November.
    8. Morana, Claudio, 2001. "A semiparametric approach to short-term oil price forecasting," Energy Economics, Elsevier, vol. 23(3), pages 325-338, May.
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