Journal article
Component structure for nonstationary time series: Application to benchmark oil prices
International review of financial analysis, v 17(5), pp 971-983
2008
Abstract
The oil market is characterized by several hundreds of different grades of crude extracted from various locations on the planet, but prices of those grades are structured with reference to only a handful of benchmark varieties. In this context, the ability to predict near term benchmark oil prices takes on special importance. In this paper, we explore an approach to model the benchmark oil price behaviors using a structure of permanent and transitory components. This initial attempt seems very encouraging at least with respect to one-week ahead forecast and deserves further investigation. In contrast to the equities, the weekly oil permanent components do not seem to be explainable by fundamental factors. However, the returns of the short-run, transitory oil components or cycles, which differ in terms of their degrees of persistence, are mostly affected by contagion spillovers and not by the fundamentals. Their volatilities vary slightly in terms of their sensitivity to major geopolitical events. The overall findings underscore the importance of benefiting more from spillover-catching strategies over diversification ones in the short-run.
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16 citations in Scopus
Details
- Title
- Component structure for nonstationary time series: Application to benchmark oil prices
- Creators
- Ramaprasad Bhar - UNSW SydneyShawkat Hammoudeh - Drexel UniversityMark A. Thompson - Augusta State University, Augusta, GA, USAMarla A Thompson - College of Engineering (1970-)
- Publication Details
- International review of financial analysis, v 17(5), pp 971-983
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics); College of Engineering
- Scopus ID
- 2-s2.0-54949158075
- Other Identifier
- 991019173860504721