Predicting the Oil Prices: Do Technical Indicators Help?

13 Pages Posted: 20 Mar 2017 Last revised: 24 Mar 2017

See all articles by Libo Yin

Libo Yin

Central University of Finance and Economics

Qingyuan Yang

Erasmus Research Institute of Management (ERIM); Tianjin University - College of Management and Economics

Date Written: March 17, 2016

Abstract

This paper aims to investigate the predictability of technical indicators to directly forecast oil prices and compare their performances with macroeconomic variables. We find that technical indicators do exhibit statistically and economically significant in-sample and out-of-sample forecasting power under OLS regressions and forecast combinations, clearly exceeding that of well-known macroeconomic variables and state-of-the-art oil-macro forecasting variables. Moreover, the strength of the predictive evidence is substantial during recessions and expansions and can detect the typical decline in the oil returns near business-cycle peaks effectively. Furthermore, technical indicators reveal substantial economic value for investors, in terms of superior oil risk premium forecasts and sizable utility gains. The technical indicators' ability to predict the oil price stems in part from its ability to predict changes in sentiment, suggesting the financialization of oil markets.

Keywords: Oil price predictability, Technical indicators, Macroeconomic variables, Out-of-sample forecasts, Business cycle

JEL Classification: Q47, Q43, C53

Suggested Citation

Yin, Libo and Yang, Qingyuan, Predicting the Oil Prices: Do Technical Indicators Help? (March 17, 2016). Energy Economics, Vol. 56, March 2016. Available at SSRN: https://ssrn.com/abstract=2934876

Libo Yin

Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Qingyuan Yang (Contact Author)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tianjin University - College of Management and Economics ( email )

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

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