Wavelet-based prediction of oil prices

This paper illustrates an application of wavelets as a possible vehicle for investigating the issue of market efficiency in futures markets for oil. The paper provides a short introduction to the wavelets and a few interesting wavelet-based contributions in economics and finance are briefly reviewed. A wavelet-based prediction procedure is introduced and market data on crude oil is used to provide forecasts over different forecasting horizons. The results are compared with data from futures markets for oil and the relative performance of this procedure is used to investigate whether futures markets are efficiently priced. (c) 2005 Elsevier Ltd. All rights reserved.