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A hybrid approach for forecasting of oil prices volatility
Author(s) -
Komijani Akbar,
Naderi Esmaeil,
Gandali Alikhani Nadiya
Publication year - 2014
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/opec.12030
Subject(s) - econometrics , predictability , volatility (finance) , mean squared error , wavelet , efficient market hypothesis , mathematics , series (stratigraphy) , long memory , economics , statistics , computer science , artificial intelligence , stock market , paleontology , horse , biology
This study aims to introduce an ideal model for forecasting crude oil price volatility. For this purpose, the ‘predictability’ hypothesis was tested using the variance ratio test, BDS test and the chaos analysis. Structural analyses were also carried out to identify possible non‐linear patterns in this series. On this basis, L yapunov exponents confirmed that the return series of crude oil price is chaotic. Moreover, according to the findings, the rate of return series has the long memory property rejecting the efficient market hypothesis and affirming the fractal markets hypothesis. The results of the G eweke and P orter‐ H udak test verified that both the rate of return and volatility series of crude oil price have the long memory property. Besides, according to both mean square error ( MSE ) and root mean square error ( RMSE ) criteria, wavelet‐decomposed data improve the performance of the model significantly. Therefore, a hybrid model was introduced based on the long memory property which uses wavelet decomposed data as the most relevant model.