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.
