Chen, Shiu-Sheng (2013): Forecasting Crude Oil Price Movements with Oil-Sensitive Stocks. Forthcoming in:
Preview |
PDF
MPRA_paper_49240.pdf Download (191kB) | Preview |
Abstract
This paper uses monthly data from 1984:M10 to 2012:M8 to show that oil-sensitive stock price indices, particularly those in the energy sector, have strong power in predicting nominal and real crude oil prices at short horizons (one-month-ahead predictions), using both in- and out-of-sample tests. In particular, the forecasts based on oil-sensitive stock price indices are able to outperform significantly the no-change forecasts. For example, using the NYSE Arca (AMEX) oil index as a predictor, the one-month-ahead forecasts for nominal crude oil prices reduce the mean squared prediction error by between 22% (for the West Texas Intermediate oil price) and 28% (for the Dubai oil price). Moreover, we find that the directional forecast based the AMEX oil index is ignificantly better than a 50:50 coin toss. The novelty of this analysis is that it proposes a new and valuable predictor that both reflects timely market information and is readily available for forecasting the spot oil price.
Item Type: | MPRA Paper |
---|---|
Original Title: | Forecasting Crude Oil Price Movements with Oil-Sensitive Stocks |
Language: | English |
Keywords: | oil-sensitive stock prices; oil prices; out-of-sample prediction |
Subjects: | C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting |
Item ID: | 49240 |
Depositing User: | Shiu-Sheng Chen |
Date Deposited: | 22 Aug 2013 09:11 |
Last Modified: | 27 Sep 2019 11:19 |
References: | Kilian, Lutz, and Vigfusson, Robert J. (2012), “Forecasting the price of oil”, in G. Elliott and A. Timmermann (eds.), forthcoming, Handbook of Economic Forecasting, volume 2, Amsterdam: North-Holland. Andrews, DonaldW. K. (1993), “Tests for parameter instability and structural change with unknown change point”, Econometrica, 61(4), 821–856. Apergis, Nicholas and Miller, Stephen M. (2008), “Do structural oil-market shocks affect stock prices?”, Energy Economics, 31(4), 569–575. Baumeister, Christiane and Kilian, Lutz (2012a), “Real-time analysis of oil price risks using forecast scenarios”, Working Papers 2012-1, Bank of Canada. Baumeister, Christiane and Kilian, Lutz(2012b), “Real-time forecasts of the real price of oil”, Journal of Business and Economic Statistics, 30(2), 326–336. Baumeister, Christiane and Kilian, Lutz(2013), “What central bankers need to know about forecasting oil prices”, mimeo, University of Michigan. Chen, Yu-Chin, Rogoff, Kenneth S., and Rossi, Barbara (2010), “Can exchange rates forecast commodity prices?”, The Quarterly Journal of Economics, 125(3), 1145–1194. Clark, Todd E. and West, Kenneth D. (2007), “Approximately normal tests for equal predictive accuracy in nested models”, Journal of Econometrics, 138(1), 291–311. Diebold, F.X. and Mariano, R.S. (1995), “Comparing predictive accuracy”, Journal of Business and Economic Statistics, 13, 253–263. Driesprong, Gerben, Jacobsen, Ben, and Maat, Benjamin (2008), “Striking oil: Another puzzle?”, Journal of Financial Economics, 89(2), 307 – 327. El-Sharif, Idris, Brown, Dick, Burton, Bruce, Nixon, Bill, and Russell, Alex (2005), “Evidence on the nature and extent of the relationship between oil prices and equity values in the UK”, Energy Economics, 27(6), 819 – 830. Elyasiani, Elyas, Mansur, Iqbal, and Odusami, Babatunde (2011), “Oil price shocks and industry stock returns”, Energy Economics, 33(5), 966 – 974. Hammoudeh, Shawkat and Aleisa, Eisa (2004), “Dynamic relationships among GCC stock markets and NYMEX oil futures”, Contemporary Economic Policy, 22(2), 250–269. Inoue, Atsushi and Kilian, Lutz (2004), “In-sample or out-of-sample tests of predictability: Which one should we use?”, Econometric Reviews, 23(4), 371–402. Jones, Charles M and Kaul, Gautam (1996), “Oil and the stock markets”, Journal of Finance, 51(2), 463–91. Kilian, Lutz and Lewis, Logan T. (2011), “Does the Fed respond to oil price shocks?”, Economic Journal, 121(555), 1047–1072. Kilian, Lutz and Murphy, Dan (2012a), “The role of inventories and speculative trading in the global market for crude oil”, forthcoming, Journal of Applied Econometrics. Kilian, Lutz and Murphy, Daniel P. (2012b), “Why agnostic sign restrictions are not enough: Understanding the dynamics of oil market VAR models”, Journal of the European Economic Association, 10(5), 1166–1188. Kilian, Lutz and Park, Cheolbeom (2009), “The impact of oil price shocks on the U.S. stock market”, International Economic Review, 50(4), 1267–1287. Kilian, Lutz and Vega, Clara (2011), “Do energy prices respond to U.S. macroeconomic news? a test of the hypothesis of predetermined energy prices”, The Review of Economics and Statistics, 93(2), 660–671. Kilian, Lutz and Vigfusson, Robert J. (2011a), “Are the responses of the U.S. economy asymmetric in energy price increases and decreases?”, Quantitative Economics, 2(3), 419–453. Kilian, Lutz and Vigfusson, Robert J. (2011b), “Nonlinearities in the oil price–output relationship”,Macroeconomic Dynamics, 15(S3), 337–363. Kilian, Lutz and Vigfusson, Robert J. (2013), “Do oil prices help forecast U.S. real GDP? the role of nonlinearities and asymmetries”, Journal of Business & Economic Statistics, 31(1), 78–93. Kling, John L. (1985), “Oil price shocks and stock market behavior”, The Journal of Portfolio Management, 12(1), 34–39. Murat, Atilimand Tokat, Ekin (2009), “Forecasting oil price movements with crack spread futures”, Energy Economics, 31(1), 85–90. Nandha, Mohan and Faff, Robert (2008), “Does oil move equity prices? a global view”, Energy Economics, 30(3), 986 – 997. Narayan, Paresh Kumar and Sharma, Susan Sunila (2011), “New evidence on oil price and firm returns”, Journal of Banking and Finance, 35(12), 3253 – 3262. Park, Jungwook and Ratti, Ronald A. (2008), “Oil price shocks and stock markets in the U.S. and 13 European countries”, Energy Economics, 30(5), 2587 – 2608. Pesaran,M. Hashem and Timmermann, Allan (2009), “Testing dependence among serially correlated multicategory variables”, Journal of the American Statistical Association, 104(485), 325–337. Reeve, Trevor A. and Vigfusson, Robert J. (2011), “Evaluating the forecasting performance of commodity futures prices”, International Finance Discussion Papers, Board of Governors of the Federal Reserve System 1025, URL: http://ideas.repec.org/p/fip/fedgif/1025.html. Sadorsky, Perry (1999), “Oil price shocks and stock market activity”, Energy Economics, 21(5), 449 – 469. Scholtens, Bert and Yurtsever, Cenk (2012), “Oil price shocks and European industries”, Energy Economics, 34(4), 1187 – 1195. Ye, Michael, Zyren, John, and Shore, Joanne (2005), “A monthly crude oil spot price forecasting model using relative inventories”, International Journal of Forecasting, 21(3), 491 – 501. Ye, Michael, Zyren, John, and Shore, Joanne (2006), “Forecasting short-run crude oil price using high- and low-inventory variables”, Energy Policy, 34(17), 2736–2743. Zhang, Yue-Jun andWei, Yi-Ming (2011), “The dynamic influence of advanced stock market risk on international crude oil returns: an empirical analysis”, Quantitative Finance, 11(7), 967–978. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/49240 |