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Do directional predictions of US gasoline prices reveal asymmetries?

Hamid Baghestani () and Jorg Bley ()
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Hamid Baghestani: American University of Sharjah
Jorg Bley: American University of Sharjah

Journal of Economics and Finance, 2020, vol. 44, issue 2, No 7, 348-360

Abstract: Abstract This study employs a directional forecasting approach to re-examine the possible “rockets and feathers” effect, using monthly crude oil and US retail gasoline prices for 1986–2018. We show that, for 1986–1999 (2000–2018), changes in crude oil prices accurately predict directional change in gasoline prices under symmetric (asymmetric) loss. This means that our results lend support to the “rockets and feathers” effect only for 2000–2018. For this period, upward moves in oil prices predict upward moves in gasoline prices up to three months ahead with a reasonably high accuracy rate (ranging from 0.70 to 0.79), while downward moves in oil prices predict downward moves in gasoline prices with a low accuracy rate (ranging from 0.48 to 0.58). These predictions, while of value to a user who assigns high (low) cost to incorrect upward (downward) moves in gasoline prices, lend support to the “rockets and feathers” effect.

Keywords: Energy prices; Rockets and feathers; Directional forecasting; Asymmetric loss (search for similar items in EconPapers)
JEL-codes: C14 D83 Q41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s12197-019-09496-2

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Handle: RePEc:spr:jecfin:v:44:y:2020:i:2:d:10.1007_s12197-019-09496-2