Oil information uncertainty and aggregate market returns: A natural experiment based on satellite data

Xianfeng Hao, Yudong Wang, Chongfeng Wu and Liangyu Wu

Journal of Financial Markets, 2024, vol. 70, issue C

Abstract: Satellites can “see” oil inventory in oil tanks, but they are sensitive to cloud cover. Cloud cover introduces a new uncertainty related to information quality. We measure such information uncertainty by assessing cloud cover over floating roof oil tanks. Using a cloud cover index, we demonstrate that higher information uncertainty leads to lower future returns (mean effect) and a stronger momentum anomaly (interaction effect). These two effects can be explained by investor overconfidence and arbitrage costs, respectively. An investor with a mean–variance preference obtains sizable gains in terms of certainty equivalent return, which accounts for the mean effect.

Keywords: Alternative data; Satellite information uncertainty; Cloud cover; Excess returns (search for similar items in EconPapers)
JEL-codes: E44 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:70:y:2024:i:c:s1386418124000314

DOI: 10.1016/j.finmar.2024.100913

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