WPS 15-02: Investor Sentiment and Oil Prices

Posted: Tuesday, November 17th 2015 at 3:02 AM

Title:

Investor Sentiment and Oil Prices

Authors:

Ding Du, Ph.D.
Associate Professor of Economics
NAU-FCB

Ronald J. Gunderson, Ph.D.
Professor of Economics
NAU-FCB

Xiaobing Zhao, Ph.D.
Associate Professor of Economics
NAU-FCB


Abstract

Although both theoretical models and anecdotal accounts suggest that investor sentiment in financial markets may be a potential determinant of oil prices, there has been no empirical research that directly addresses this question. We fill this gap. Our findings suggest that investor sentiment helps to explain the fluctuations in oil prices (as well as gasoline, heating oil and oil-company stock prices). High/low sentiment predicts subsequent low/high oil returns particularly at longer horizons. Our findings have important theoretical as well as practical implications. In terms of theoretical implications, our findings suggest that future theoretical models of oil prices should take into account both fundamentals and investor sentiment. In terms of practical implications, our findings imply a new predictor of oil prices.

Keywords: investor sentiment; oil prices

WPS 15-02 November 2015

PDF of working paper HERE.



Categories: working paper series investor sentiment and oil prices working paper series 2015 fall 2015 2015 ding du ronald j gunderson xiaobing zhao investor sentiment oil prices