Investor happiness and predictability of the realized volatility of oil price

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Authors

Bonato, Matteo
Gkillas, Konstantinos
Gupta, Rangan
Pierdzioch, Christian

Journal Title

Journal ISSN

Volume Title

Publisher

MDPI Publishing

Abstract

We use the the heterogeneous autoregressive realized volatility (HAR-RV) model to analyze both in sample and out-of-sample whether a measure of investor happiness predicts the daily realized volatility of oil-price returns, where we use high-frequency intraday data to measure realized volatility. Full-sample estimates reveal that realized volatility is significantly negatively linked to investor happiness at a short forecast horizon. Similarly, out-of-sample results indicate that investor happiness significantly improves the accuracy of forecasts of realized volatility at a short forecast horizon. Results for a medium and a long forecast horizon are insignificant. We argue that our results shed light on the role played by speculation in oil products and the potential function of oil-related products as a hedge against risks in traditional financial assets.

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Keywords

Investor happiness, Oil market, Realized volatility, Forecasting, Heterogeneous autoregressive realized volatility (HAR-RV)

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Citation

Bonato, M., Gkillas, K., Gupta, R. et al. 2020, 'Investor happiness and predictability of the realized volatility of oil price', Sustainability, vol. 13, art. 4309, pp. 1-11.