EconPapers    
Economics at your fingertips  
 

The predictive effect of risk aversion on oil returns under different market conditions

Jihong Xiao, Yudong Wang and Danyan Wen

Energy Economics, 2023, vol. 126, issue C

Abstract: This paper uses a new risk aversion index to investigate the predictive effect of risk aversion on oil returns under different market conditions. Moreover, we assess whether the US partisan conflict shapes the prediction of risk aversion for oil returns. Based on the quantile regressions of oil returns on lagged risk aversion changes, we find that risk aversion negatively predicts oil returns after oil financialization, and such a predictive effect is stronger under bearish market conditions. Also, we find that the negative predictive effect of risk aversion is weaker with increasing lags in bearish stages, but this negative effect does not last in bullish stages and even becomes positive at a longer lag. Finally, we find that the US partisan conflict mitigates the negative predictive effect of risk aversion on oil returns in the post-financialization period, and this mitigation is stronger in upward market conditions. Our findings provide novel insight into the determinants of oil prices from the perspective of investors' risk appetite.

Keywords: Oil returns; Risk aversion; US partisan conflict; Quantile regression (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014098832300467X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:126:y:2023:i:c:s014098832300467x

DOI: 10.1016/j.eneco.2023.106969

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:eneeco:v:126:y:2023:i:c:s014098832300467x