Neural Network Predictions Can Be Misleading Evidence From Predicting Crude Oil Futures Prices

Abstract

This paper applies Neural Network to predict WTI crude oil futures prices on basis of intraday minutely high frequency data. We looked into the recent market crash in the WTI crude oil futures market in April before the Delivery day. The results indicate that Neural Network could be misleading. More specifically, the paper shows that in normal situations Neural Network works well in sample and out of sample but it could give predictions with the opposite signs when the there exists a crash such as the one happened on April 20th, 2020. The evidence demonstrates that the prediction based on Neural Network may not be suitable to predict the market crash which is due to extreme shocks or financial or economic crises. This study gives a new insight in the relation between short term price discovery and the extreme market crash movement.