Forecasting crude oil prices: Does global financial uncertainty matter?

Yong Ma, Shuaibing Li and Mingtao Zhou

International Review of Economics & Finance, 2024, vol. 96, issue PC

Abstract: In this paper, we introduce an informative uncertainty measure, global financial uncertainty (GFU), for the prediction of crude oil price returns. We find that GFU exhibits significant and remarkable forecasting power for crude oil price returns both in- and out-of-sample with monthly R2 of 13.63% and 11.32%, respectively. This predictive power outperforms and complements those of popular economic variables and uncertainty measures. Further analysis shows that a mean–variance investor can obtain considerable economic gains based on the return forecasts of GFU. By dissecting the GFU’s predictability, we observe that the strong forecasting efficacy of GFU for crude oil price returns may stem from its notable power during high-risk conditions and its significant effects on oil demand dynamics.

Keywords: Global financial uncertainty; Crude oil prediction; Asset allocation; Demand shocks (search for similar items in EconPapers)
JEL-codes: C22 G12 G15 G19 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pc:s1059056024007159

DOI: 10.1016/j.iref.2024.103723

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