Do High-Frequency Financial Data Help Forecast Oil Prices? The MIDAS Touch at Work

Lutz Kilian and Christiane Baumeister
Authors registered in the RePEc Author Service: Pierre Guérin

No 9768, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The substantial variation in the real price of oil since 2003 has renewed interest in the question of how to forecast monthly and quarterly oil prices. There also has been increased interest in the link between financial markets and oil markets, including the question of whether financial market information helps forecast the real price of oil in physical markets. An obvious advantage of financial data in forecasting oil prices is their availability in real time on a daily or weekly basis. We investigate whether mixed-frequency models may be used to take advantage of these rich data sets. We show that, among a range of alternative high-frequency predictors, especially changes in U.S. crude oil inventories produce substantial and statistically significant real-time improvements in forecast accuracy. The preferred MIDAS model reduces the MSPE by as much as 16 percent compared with the no-change forecast and has statistically significant directional accuracy as high as 82 percent. This MIDAS forecast also is more accurate than a mixed-frequency real-time VAR forecast, but not systematically more accurate than the corresponding forecast based on monthly inventories. We conclude that typically not much is lost by ignoring high-frequency financial data in forecasting the monthly real price of oil.

Keywords: forecasts; Mixed frequency; Oil price; Real-time data (search for similar items in EconPapers)
JEL-codes: C53 G14 Q43 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-ene, nep-for and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Do high-frequency financial data help forecast oil prices? The MIDAS touch at work (2015)
Working Paper: Do High-Frequency Financial Data Help Forecast Oil Prices? The MIDAS Touch at Work (2014)
Working Paper: Do high-frequency financial data help forecast oil prices? The MIDAS touch at work (2013)
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