Risk-Adjusted Forecasts of Oil Prices

Patrizio Pagano () and Massimiliano Pisani

No 585, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper documents the existence of a significant forecast error on crude oil futures, particularly evident since the mid-1990s, which is negative on average and displays a non-trivial cyclical component (risk premium). We show that the forecast error on oil futures could have been explained in part by means of real-time US business cycle indicators, such as the degree of utilized capacity in manufacturing. An out-of-the-sample prediction exercise reveals that futures which are adjusted to take into account this time-varying component produce significantly better forecasts than those of the unadjusted futures and random walk, particularly at horizons of more than 6 months.

Keywords: Oil; Forecasting; Futures (search for similar items in EconPapers)
JEL-codes: E37 E44 G13 Q4 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-ene, nep-fmk, nep-for, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Risk-Adjusted Forecasts of Oil Prices (2009)
Working Paper: Risk-adjusted forecasts of oil prices (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_585_06

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