A new feature selection method based on importance measures for crude oil return forecasting

This paper introduces a novel feature selection method, called Feature Selection based on Importance Measures (FS-IM), to enhance the forecasting of crude oil returns. FS-IM innovatively combines active learning with the application of Gaussian noise to input features and selects the most relevant features using an optimal threshold value. The paper applies a ridge regression (RR) model based on FS-IM (FS-RR) to identify the factors that have important information for crude oil return forecasting. The paper compares FS-IM with other dimension reduction methods such as Principal Component Analysis (PCA), Kernel Principal Component Analysis (KPCA), and Independent Component Analysis (ICA). The results show that FS-IM can significantly improve model accuracy, demonstrating its effectiveness in finding key features. Moreover, FS-IM is more stable and consistent than other dimension reduction methods in enhancing the prediction accuracy in different scenarios, indicating its superior capability in capturing complex relationships between input and output variables. Furthermore, this study compares FS-RR model with other 13 prediction models by conducting experiments using a series of evaluation metrics, different statistical tests, and different step-ahead predictions and training sets. The results confirm that the RR model based on FS-IM can consistently outperform other model in terms of predictive performance and economic value, proving its effectiveness and robustness. This study contributes to the literature on crude oil price forecasting by addressing the challenges of high-dimensional and complex data, and by providing a robust, practical tool for professionals in energy economics and finance.