Forecasting oil prices with random forests

Emanuel Kohlscheen ()
Additional contact information
Emanuel Kohlscheen: Bank for International Settlements

Empirical Economics, 2024, vol. 66, issue 2, No 15, 927-943

Abstract: Abstract This study analyzes oil price movements through the lens of an agnostic random forest model, which is based on 1000 regression trees. It shows that this highly disciplined, yet flexible computational model reduces in-sample root-mean-square errors (RMSEs) by 65% relative to a standard linear least square model that uses the same comprehensive set of 11 high-frequency explanatory factors. In 1–3 months ahead price forecasting exercises the RMSE reduction relative to OLS ranges exceeds 50%, highlighting the relevance of non-linearities in oil markets. The results underscore the importance of incorporating financial factors into oil models: US interest rates, the dollar and the VIX together account for 39% of the models’ RMSE reduction in the post-2010 sample, rising to 48% in the post-2020 sample.

Keywords: Dollar; Forecasting; Machine learning; Oil; Risk (search for similar items in EconPapers)
JEL-codes: C40 F30 Q40 Q41 Q47 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00181-023-02480-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:66:y:2024:i:2:d:10.1007_s00181-023-02480-0

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-023-02480-0

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().