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The Dynamic Time-frequency Relationship between International Oil Prices and Investor Sentiment in China: A Wavelet Coherence Analysis

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  • Zhengke Ye
  • Chunyan Hu
  • Linjie He
  • Guangda Ouyang
  • Fenghua Wen

Abstract

We take a fresh look at the interaction between crude oil prices and investor sentiment from the novel perspective of both the time and the frequency domains. By using principal component analysis, we first construct an investor sentiment indicator. Then, crude oil prices are decomposed into three oil price shocks through an SVAR model. Lastly, the dynamic relationship between investor sentiment and oil price shocks is comprehensively studied from both the time and the frequency domains via wavelet coherence analysis. Our results show the leading position of crude oil prices in the co-movement relationship with investor sentiment. Further, we distinguish the different effects of oil price shocks on investor sentiment at different times and frequencies. We also find that the patterns of the co-movement between oil prices (oil price shocks) and investor sentiment change not only with time but also with frequency.

Suggested Citation

  • Zhengke Ye & Chunyan Hu & Linjie He & Guangda Ouyang & Fenghua Wen, 2020. "The Dynamic Time-frequency Relationship between International Oil Prices and Investor Sentiment in China: A Wavelet Coherence Analysis," The Energy Journal, , vol. 41(5), pages 251-270, September.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:5:p:251-270
    DOI: 10.5547/01956574.41.5.fwen
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    References listed on IDEAS

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    Cited by:

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    2. Yousaf, Imran & Bejaoui, Azza & Ali, Shoaib & Li, Yanshuang, 2024. "Demystifying the dynamic relationship between news sentiment index and ESG stocks: Evidence from time-frequency wavelet analysis," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    3. Mohamed Arbi Madani & Zied Ftiti, 2024. "Understanding Intraday Oil Price Dynamics during the COVID-19 Pandemic: New Evidence from Oil and Stock Investor Sentiments," The Energy Journal, , vol. 45(3), pages 57-86, May.

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