Forecasting Crude Oil Price: A Forecast Combination Approach

This article uses monthly data from 1986:M2 to 2016:M10 to examine the predictive power for both monthly-averaged oil prices and end-of-month oil prices by multiple forecast combination methods. According to Working (1960) , our work derive a new predictor of monthly-averaged oil prices which can significantly reduce the MSPE by 39% compare with no-change forecast. When forecasting the end-of-month oil prices, the predictive power only exists in a certain period, can''t hold the power for the whole evaluation period. Our work explain the relationship between MSPE calculated with two different ways. Because the predictive power only exists in a certain period, there would be some different between MSPE Ratio of two kinds of MSPE calculation ways.This difference would be correlated with the choice of evaluation period.