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Investor sentiment spillover effect and market quality in crude oil futures

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  • Chen, Yu-Lun
  • Mo, Wan-Shin
  • Chang, Ya-Kai

Abstract

This study examines the influence of investor sentiment on trading behavior in crude oil futures. We find that money manager traders (i.e., hedge funds) adopt positive feedback trading strategies in normal periods and turn to negative feedback trading in pessimistic periods. Meanwhile, swap dealers adopt negative feedback trading in normal periods and reduce the intensity of their negative feedback trading during pessimistic periods. We also find that the sentiment-driven trading of money manager traders and swap dealers does not hurt the quality of the crude oil futures market in either pessimistic or optimistic periods. In contrast, producers' (hedgers’) positions increase volatility and pricing errors in the crude oil futures market.

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  • Chen, Yu-Lun & Mo, Wan-Shin & Chang, Ya-Kai, 2022. "Investor sentiment spillover effect and market quality in crude oil futures," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 177-193.
    • Handle: RePEc:eee:reveco:v:82:y:2022:i:c:p:177-193
    DOI: 10.1016/j.iref.2022.06.013
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    More about this item

    Keywords

    Crude oil futures; Hedge funds; Pricing error; SWAP dealer;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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