Determining Time-Varying Drivers of Spot Oil Price in a Dynamic Model Averaging Framework

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ID: 40265
2018
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Abstract
This article presents results from modelling spot oil prices by Dynamic Model Averaging (DMA). First, based on a literature review and availability of data, the following oil price drivers have been selected: stock prices indices, stock prices volatility index, exchange rates, global economic activity, interest rates, supply and demand indicators and inventories level. Next, they have been included as explanatory variables in various DMA models with different initial parameters. Monthly data between January 1986 and December 2015 has been analyzed. Several variations of DMA models have been constructed, because DMA requires the initial setting of certain parameters. Interestingly, DMA has occurred to be robust to setting different values to these parameters. It has also occurred that the quality of prediction is the highest for the model with the drivers solely connected with the stock markets behavior. Drivers connected with macroeconomic fundamental indicators have not been found so important. This observation can serve as an argument favoring the hypothesis of the increasing financialization of the oil market, at least in the short-term period. The predictions from other, slightly different modelling variations based on DMA methodology, have happened to be consistent with each other in general. Many constructed models have outperformed alternative forecasting methods. It has also been found that normalization of the initial data, although not necessary for DMA from the theoretical point of view, significantly improves the quality of prediction.
Reference Key
drachal2018determiningenergies Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Drachal, Krzysztof;
Journal energies
Year 2018
DOI
DOI not found
URL
http://www.mdpi.com/1996-1073/11/5/1207
Keywords Keywords not found

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