Forecasting Oil Price Movements: Exploiting the Information in the Future Market
Relying on the cost of carry model, we investigate the long-run relationship between spot and futures prices and use the information implied in these cointegrating relationships to forecast out of sample oil spot and futures price movements. In order to forecast oil price movements, we employ a Vector Error Correction Model (VECM), where the deviations from the long-run relationships between spot and futures prices constitute the equilibrium error. In order to evaluate forecasting performance we use the Random Walk Model (RWM) as a benchmark. We .nd that: (i) in-sample, the information in the futures market can explain a sizeable portion of oil price movements; (ii) out-of-sample, the VECM is able to beat the random walk model, both in terms of point forecasting and in terms of market timing ability
|Date of creation:||05 Mar 2007|
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|Contact details of provider:|| Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma|
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