For example, the reduction in MSPE is shown to be between 22% and 28% for 1-month-ahead prediction based on the AMEX oil index. Moreover, we find that the directional forecast is significantly better than tossing a coin.
The oil-sensitive stock price index with the longest sample period available is the AMEX oil index, which is a price-weighted index of the leading companies involved in the exploration, production, and development of petroleum.
We obtain the AMEX oil index, and the S&P 500 price index from Yahoo Finance.
According to the baseline results, the estimates of [beta] for the AMEX oil index are all positive and statistically significant, which suggests that higher values of oil-sensitive stock returns predict the higher growth rate of crude oil prices.
AMEX Oil Index and the MSCI world energy sector provide useful information for forecasting the percentage changes in crude oil via in-sample predictive regressions.
Table 5 shows that at short horizons (1 and 3 months), the forecasts for nominal crude oil price levels based on the AMEX oil index produce lower MSPEs than the no-change forecast.
AMEX Oil Index and the MSCI world energy sector stock price index help to forecast crude oil prices (nominal and real) out-of-sample at short horizons (1 month).
For forecasting the 1-month-ahead nominal WTI price of oil using the AMEX oil index as a predictor from 1984:M10 to 2012:M8, we find that the /-statistics is 3.89 for the in-sample test.
The baseline findings with monthly data from 1984:M10 to 2012:M8 show that the AMEX oil index indeed provides useful information in forecasting crude oil prices via in-sample predictive regressions.