Forecasting Day-Ahead Brent Crude Oil Prices Using Hybrid Combinations of Time Series Models

Hasnain Iftikhar, Aimel Zafar, Josue E. Turpo-Chaparro (), Paulo Canas Rodrigues and Javier Linkolk López-Gonzales ()
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Hasnain Iftikhar: Department of Mathematics, City University of Science and Information Technology Peshawar, Peshawar 25000, Pakistan
Aimel Zafar: Department of Statistics, University of Peshawar, Peshawar 25000, Pakistan
Josue E. Turpo-Chaparro: Escuela de Posgrado, Universidad Peruana Unión, Lima 15468, Peru
Paulo Canas Rodrigues: Department of Statistics, Federal University of Bahia, Salvador 40170-110, Brazil
Javier Linkolk López-Gonzales: Vicerrectorado de Investigación, Universidad Privada Norbert Wiener, Lima 15046, Peru

Mathematics, 2023, vol. 11, issue 16, 1-19

Abstract: Crude oil price forecasting is an important research area in the international bulk commodity market. However, as risk factors diversify, price movements exhibit more complex nonlinear behavior. Hence, this study provides a comprehensive analysis of forecasting Brent crude oil prices by comparing various hybrid combinations of linear and nonlinear time series models. To this end, first, the logarithmic transformation is used to stabilize the variance of the crude oil prices time series; second, the original time series of log crude oil prices is decomposed into two new subseries, such as a long-run trend series and a stochastic series, using the Hodrick–Prescott filter; and third, two linear and two nonlinear time series models are considered to forecast the decomposed subseries. Finally, the forecast results for each subseries are combined to obtain the final day-ahead forecast result. The proposed modeling framework is applied to daily Brent spot prices from 1 January 2013 to 27 December 2022. Six different accuracy metrics, pictorial analysis, and a statistical test are performed to verify the proposed methodology’s performance. The experimental results (accuracy measures, pictorial analysis, and statistical test) show the efficiency and accuracy of the proposed hybrid forecasting methodology. Additionally, our forecasting results are comparatively better than the benchmark models. Finally, we believe that the proposed forecasting method can be used for other complex financial time data to obtain highly efficient and accurate forecasts.

Keywords: Brent spot crude oil price forecasting; Hodrick–Prescott filter; time series models; hybrid approach (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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