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Daily prediction of short-term trends of crude oil prices using neural networks exploiting multimarket dynamics
Published in
2009
Volume: 3
   
Issue: 2
Pages: 177 - 191
Abstract
This paper documents a systematic investigation on the predictability of short-term trends of crude oil prices on a daily basis. In stark contrast with longer-term predictions of crude oil prices, short-term prediction with time horizons of 1-3 days posits an important problem that is quite different from what has been studied in the literature. The problem of such short-term predicability is tackled through two aspects. The first is to examine the existence of linear or nonlinear dynamic processes in crude oil prices. This sub-problem is addressed with statistical analysis involving the Brock-Dechert-Scheinkman test for nonlinearity. The second aspect is to test the capability of artificial neural networks (ANN) for modeling the implicit nonlinearity for prediction. Four experimental models are designed and tested with historical data: (1) using only the lagged returns of filtered crude oil prices as input to predict the returns of the next days; this is used as the benchmark, (2) using only the information set of filtered crude oil futures price as input, (3) combining the inputs from the benchmark and second models, and (4) combing the inputs from the benchmark model and the intermarket information. In order to filter out the noise in the original price data, the moving averages of prices are used for all the experiments. The results provided sufficient evidence to the predictability of crude oil prices using ANN with an out-of-sample hit rate of 80%, 70%, and 61% for each of the next three days' trends. © 2009 Higher Education Press and Springer-Verlag GmbH.
About the journal
JournalFrontiers of Computer Science in China
ISSN16737350