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Coal price shocks, investor sentiment, and stock market returns

Author

Listed:
  • Liu, Zhenhua
  • Chen, Shumin
  • Zhong, Hongyu
  • Ding, Zhihua

Abstract

The development of energy finance and the financialization of bulk commodities has deepened the financial attributes of coal, resulting in coal price shocks not only affecting the macroeconomy through the production sector, but also further affecting the financial market. This study investigates the dynamic impacts of coal price shocks on stock market returns accounting for the macroeconomic path by using a time-varying parameter vector autoregressive with stochastic volatility (TVP-SV-VAR) model, as well as examines the role of investor sentiment in the transmission of coal price shocks to the stock market. The results show that coal price shocks have a significant negative impact on Chinese stock market returns, but the impact degree is time-varying, particularly larger during economic downturns. Moreover, individual investor sentiment provides an important channel in the transmission of coal price shocks to the stock market. Insights gleaned from the findings in this study are useful for coal industry regulation policy formulation, market investment decision-making and energy market risk management.

Suggested Citation

  • Liu, Zhenhua & Chen, Shumin & Zhong, Hongyu & Ding, Zhihua, 2024. "Coal price shocks, investor sentiment, and stock market returns," Energy Economics, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:eneeco:v:135:y:2024:i:c:s014098832400327x
    DOI: 10.1016/j.eneco.2024.107619
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