Carbon Price Combination Forecasting Model Based on Lasso Regression and Optimal Integration

30 Pages Posted: 10 Sep 2022

See all articles by Ruiqi Yang

Ruiqi Yang

SILC Business School

Xiaoman Wang

Anhui University

Shengxia Tu

affiliation not provided to SSRN

Yumin Li

SILC Business School

Jiaming Zhu

Anhui University

Muhammet Deveci

University College London - Bartlett School of Sustainable Construction

Qun Wu

Southeast University

Abstract

Accurate carbon price index prediction can delve deeply into the internal law of carbon price changes, provide helpful information to managers and decision-makers, as well as improve the carbon market system. Nevertheless, existing methods for combination forecasting typically use one or a few specific methods. Specifically, various forecasting methods would provide practical information for carbon price forecasting from different perspectives due to the varying model settings. This study combines various models for carbon price forecasting. ARIMA, NARNN, LSTM, and 11 other single forecasting models are employed in this study, including both traditional statistical forecasting models and artificial intelligence forecasting models, to fully exploit the information provided by each method and establish the optimal combination forecasting model based on Lasso regression. First, the carbon price index is predicted using 11 single prediction models. Furthermore, given the multicollinearity of the single prediction series, this study employs Lasso regression to reduce the dimension of the single prediction model, which is then used to construct the optimal combination prediction model. Finally, the proposed model is applied to SZA-2017 and SZA-2019 carbon price data in Shenzhen. The results demonstrate that the model developed in this study outperforms other benchmark prediction models in terms of prediction error and direction accuracy, showing the efficacy of the proposed method.

Keywords: Carbon price forecasting, Lasso regression, Optimal combined forecasting model

Suggested Citation

Yang, Ruiqi and Wang, Xiaoman and Tu, Shengxia and Li, Yumin and Zhu, Jiaming and Deveci, Muhammet and Wu, Qun, Carbon Price Combination Forecasting Model Based on Lasso Regression and Optimal Integration. Available at SSRN: https://ssrn.com/abstract=4215309 or http://dx.doi.org/10.2139/ssrn.4215309

Ruiqi Yang

SILC Business School ( email )

China

Xiaoman Wang

Anhui University ( email )

China

Shengxia Tu

affiliation not provided to SSRN ( email )

No Address Available

Yumin Li

SILC Business School ( email )

149 Yanchang Road
SHANGDA ROAD 99
Shanghai 200072, SHANGHAI 200444
China

Jiaming Zhu (Contact Author)

Anhui University ( email )

China

Muhammet Deveci

University College London - Bartlett School of Sustainable Construction ( email )

Qun Wu

Southeast University ( email )

Banani, Dhaka, Bangladesh
Dhaka
Bangladesh

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