Forecasting ability of the investor sentiment endurance index: The case of oil service stock returns and crude oil prices

Ling T. He and K.M. Casey

Energy Economics, 2015, vol. 47, issue C, 121-128

Abstract: Using a binomial probability distribution model this paper creates an endurance index of oil service investor sentiment. The index reflects the probability of the high or low stock price being the close price for the PHLX Oil Service Sector Index. Results of this study reveal the substantial forecasting ability of the sentiment endurance index. Monthly and quarterly rolling forecasts of returns of oil service stocks have an overall accuracy as high as 52% to 57%. In addition, the index shows decent forecasting ability on changes in crude oil prices, especially, WTI prices. The accuracy of 6-quarter rolling forecasts is 55%. The sentiment endurance index, along with the procedure of true forecasting and accuracy ratio, applied in this study provides investors and analysts of oil service sector stocks and crude oil prices as well as energy policy-makers with effective analytical tools.

Keywords: Endurance index of oil service investor sentiment; Forecasting ability; Rolling forecast; Accuracy ratio (search for similar items in EconPapers)
JEL-codes: C51 C53 C58 G12 G17 M21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:47:y:2015:i:c:p:121-128

DOI: 10.1016/j.eneco.2014.11.005

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