Sentiment and energy price volatility: A nonlinear high frequency analysis

Fredj Jawadi, David Bourghelle, Philippe Rozin, Abdoulkarim Idi Cheffou and Gazi Uddin

Energy Economics, 2024, vol. 133, issue C

Abstract: This study investigates the volatility dynamics of oil and gas prices in an environment characterized by post-coronavirus disease 2019 recovery, uncertainty, high inflation, and geopolitical tensions. Unlike previous studies, we examine a long-run series of high-frequency data on gas and oil prices from July 2007 to May 2022, which provides more than one million observations with which to analyze volatility. We compute realized volatility (RV) and decompose it into continuous volatility and jumps. We then investigate the relationship between uncertainty, investor sentiment, and RV, as well as its main components. Econometrically, we extend the heterogeneous autoregressive model of Corsi (2009) while considering not only disaggregate proxies for volatility (jumps and continuous volatility) and introducing uncertainty and heterogeneous investor sentiment, but also by allowing the model to include asymmetry, nonlinearity, and time variation according to the regime under consideration. Our results present three main findings. First, we find significant evidence of volatility decomposition, suggesting that both markets are characterized by significant jumps. Second, we show that trading volume, extra-financial news (uncertainty, investor sentiment), and jumps appear to drive commodity price volatility. Third, we find evidence of nonlinearity and threshold effects on energy price volatility. These findings are relevant for policymakers, regulators, investors, and portfolio managers, as they enable them to better characterize and forecast changes in commodity prices.

Keywords: Commodity volatility; Investor sentiment; Realized volatility; Continuous volatility; Jump; Nonlinearity (search for similar items in EconPapers)
JEL-codes: C22 G10 G15 Q4 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:133:y:2024:i:c:s0140988324001737

DOI: 10.1016/j.eneco.2024.107465

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