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Oil sentiment and the U.S. inflation premium

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  • Alturki, Sultan
  • Olson, Eric

Abstract

In this paper, we employ a new dataset to measure the impact of investor sentiment regarding oil prices on the U.S. inflation premium. Our empirical analysis relies on Structural Vector Autoregression (SVAR) and out-of-sample forecasts. The results indicate that a one standard deviation positive shock to overall investor sentiment regarding oil prices results in a significant increase in the U.S. inflation premium by approximately 1.2% over the subsequent 10 weeks. Compared to individual investor sentiment, institutional investor sentiment regarding oil prices has a larger impact on the U.S. inflation premium. Finally, we find an out-of-sample evidence that the overall investor sentiment regarding oil prices has predictive power on the U.S. inflation premium.

Suggested Citation

  • Alturki, Sultan & Olson, Eric, 2022. "Oil sentiment and the U.S. inflation premium," Energy Economics, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:eneeco:v:114:y:2022:i:c:s0140988322004467
    DOI: 10.1016/j.eneco.2022.106317
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    More about this item

    Keywords

    Oil sentiment; Inflation premium; Individual and institutional investors;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G4 - Financial Economics - - Behavioral Finance
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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