Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets.pdf

Predictive Evaluation of Econometric Forecasting Models in Commodity Futures Markets Tian Zeng Aeltus Investment Management, Inc., 242 Trumbull Street, ALT6, Hartford, CT 06103-1205 phone: 860-275-4924; fax: 860-275-3420; email: zengt@ and Norman R. Swanson Penn State University, 521 Kern Graduate Bldg., Department of Economics, University Park, PA 16802 phone: 814-865-2234; fax: 814-863-4775; email:nswanson@ Jan. 1998 ABSTRACT The predictive accuracy of various econometric models, including random walks, vector autoregressive and vector error-correction models, are investigated using daily futures prices of 4 commodities (the SP500 index, treasury bonds, gold and crude oil). All models are estimated using a rolling window approach, and evaluated by both in-sample and out-of-sample performance measures. The criteria considered include system criteria, where we evaluate multi-equation forecasting models, and univariate forecast accuracy criteria. The five univariate criteria are root mean square error (RMSE), mean absolute deviation (MAD), mean absolute percentage error (MAPE), confusion matrix (CM), and confusion rate (CR). The five system criteria used include the trace of second moment matrix of the forecast errors matrix (TMSE), the trace of second moment matrix of percentage forecast errors (TMAPE), the generalized forecast error second moment matrix (GFESM), and a trading-rule profit criterion (TPC) based on a maximum-spread trading strategy. An in-sample criterio