Investor sentiment and energy futures predictability: Evidence from Feasible Quasi Generalized Least Squares

Ismail Fasanya, Oluwasegun Adekoya (), Oluwatomisin Oyewole and Soliu Adegboyega

The North American Journal of Economics and Finance, 2022, vol. 63, issue C

Abstract: Contributing to the budding literature on how emotional and sentimental actions impact the performance of financial markets, this study examines the predictability of energy futures prices with investors’ sentiments. In particular, we examine which of the three (neutral, bear and bull) investors’ sentiments offer accurate forecast information on four energy futures prices. Using the predictability test proposed by Westerlund and Narayan (2015), we discover that all the forms of investors’ sentiments are significant predictors of the movements in energy futures prices. However, the bear sentiments outshine other variants in the forecast of crude oil futures prices, while the bull sentiments provide the most accurate forecast information for the remaining energy futures prices, namely heating oil, gasoline and natural gas. We also find this evidence consistent even when asymmetries are considered in the predictability models. Among other implications of these findings, investors in energy futures and portfolio managers are expected to consider often emotional perceptions in their portfolio constructions and the predictability of future gains.

Keywords: Energy futures; Investors sentiment; Forecast evaluation; Asymmetries; Behavioural finance (search for similar items in EconPapers)
JEL-codes: C22 C58 G13 G14 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001656

DOI: 10.1016/j.najef.2022.101830

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