Forecasting equity risk premium: The role of investor concern on oil price volatility

Dakai Li

Research in International Business and Finance, 2025, vol. 77, issue PB

Abstract: We explore the impact of investor concern to oil price volatility on Chinese equity risk premium by constructing an investor oil price volatility concern index (IOPVC) using Baidu Index. Our analysis demonstrates that IOPVC is a strong predictor of equity risk premium, with a negative correlation to future returns. Robustness checks, including the use of different data sources, various prediction windows, and differing levels of risk aversion, confirm that the relationship between IOPVC and equity risk premium is reliable. Furthermore, our analysis reveals that IOPVC is a leading indicator of forthcoming economic scenarios and exerts a significant influence on investor risk aversion.

Keywords: Oil market; Investor concern; Equity risk premium predictability; Searching activity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:77:y:2025:i:pb:s0275531925002466

DOI: 10.1016/j.ribaf.2025.102990

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