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Attention! Predicting crude oil prices from the perspective of extreme weather

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  • Xu, Yongan
  • Duong, Duy
  • Xu, Hualong

Abstract

Using big data text technology, our paper constructs an Extreme Weather Attention index (EWA) to analyze its impact on crude oil prices, contributing to climate finance and behavioral finance research. Grounded in limited attention theory, EWA's influence on oil pricing is examined through investor attention. In-sample results show EWA as a significant positive predictor for long-term oil prices, with extreme weather affecting supply and demand. Out-of-sample tests reveal EWA's limited short-term prediction ability, but its accuracy in medium and long-term forecasts can yield substantial economic benefits for investors.

Suggested Citation

  • Xu, Yongan & Duong, Duy & Xu, Hualong, 2023. "Attention! Predicting crude oil prices from the perspective of extreme weather," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005627
    DOI: 10.1016/j.frl.2023.104190
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    Cited by:

    1. Leonardo Bortolan & Atreya Dey & Luca Taschini, 2024. "Volatile Temperatures and Their Effects on Equity Returns and Firm Performance," CESifo Working Paper Series 11438, CESifo.

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    More about this item

    Keywords

    Crude oil; Predicting; Attention; Extreme weather; Behavioral finance;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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