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Oil shocks and investor attention

Author

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  • Georgios Bampinas

    (Panteion University of Athens, Greece)

  • Theodore Panagiotidis

    (University of Macedonia, Greece)

  • Georgios Papapanagiotou

    (University of Macedonia, Greece)

Abstract

In this paper, we examine the existence of sentiment exposure in oil price returns. We augment the SVAR model of Kilian and Park ( International Economic Review , 2009, 50, 1267–1287) by including the effects of (1) investors sentiment proxied by Google's search volume index, (2) economic policy uncertainty (EPU) and (3) time variation in both coefficients and the variance-covariance matrix. Our empirical results show that changes in investor attention do exhibit a significant long-lasting impact on oil and stock market returns. Aggregate oil demand and supply shocks have a transitory effect on investor sentiment. We reveal that the impact of EPU is temporary and significant, while EPU responds strongly to shocks on oil prices and stock market returns. In all cases, the magnitude and sign of responses are affected by the timing of the shock. Our findings are robust to an alternative sentiment indicator and once the role of oil inventories is considered.

Suggested Citation

  • Georgios Bampinas & Theodore Panagiotidis & Georgios Papapanagiotou, 2022. "Oil shocks and investor attention," Working Paper series 22-13, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:22-13
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    More about this item

    Keywords

    Search Volume Index; investor attention; oil price; stock market; policy uncertainty; time-varying parameter VAR; stochastic volatility; dynamic factor model;
    All these keywords.

    JEL classification:

    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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