Investor sentiment and energy futures predictability: Evidence from Feasible Quasi Generalized Least Squares |
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Affiliation: | 1. School of Economics and Finance, University of the Witwatersrand, Johannesburg, South Africa;2. School of Economics, University of Maine, Maine, United States;3. Department of Economics, Federal University of Agriculture, Abeokuta, Nigeria;4. Department of Economics, Olabisi Onabanjo University, Ago-iwoye, Nigeria;1. Claremont McKenna College, United States;2. EY-Parthenon, San Francisco, California, United States;3. Lake Forest College and University of Wisconsin, Whitewater, United States;1. School of Economics, Xiamen University, Xiamen, Fujian, PR China;2. School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan, PR China;1. School of Economics and Finance, University of the Witwatersrand, Johannesburg, South Africa;2. Department of Economics, Federal University of Agriculture, Abeokuta, Ogun State, Nigeria;3. Centre for Social and Economic Data Analytics (CSEDA), Edinburgh Business School, School of Social Sciences, Heriot-Watt University, Edinburgh, United Kingdom;1. School of Management, China Institute for Studies in Energy Policy, Xiamen University, Xiamen 361005, China;2. School of Public Affairs, Zhejiang University, Hangzhou 310058, China;3. Institute for Advanced Studies in Finance and Economics, Hubei University of Economics, Wuhan 430205, China |
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Abstract: | Contributing to the budding literature on how emotional and sentimental actions impact the performance of financial markets, this study examines the predictability of energy futures prices with investors’ sentiments. In particular, we examine which of the three (neutral, bear and bull) investors’ sentiments offer accurate forecast information on four energy futures prices. Using the predictability test proposed by Westerlund and Narayan (2015), we discover that all the forms of investors’ sentiments are significant predictors of the movements in energy futures prices. However, the bear sentiments outshine other variants in the forecast of crude oil futures prices, while the bull sentiments provide the most accurate forecast information for the remaining energy futures prices, namely heating oil, gasoline and natural gas. We also find this evidence consistent even when asymmetries are considered in the predictability models. Among other implications of these findings, investors in energy futures and portfolio managers are expected to consider often emotional perceptions in their portfolio constructions and the predictability of future gains. |
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Keywords: | Energy futures Investors sentiment Forecast evaluation Asymmetries Behavioural finance C22 C58 G13 G14 |
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