Investor Happiness and Predictability of the Realized Volatility of Oil Price

• Main Authors: Matteo Bonato, Konstantinos Gkillas, Rangan Gupta, Christian Pierdzioch
• Format: Article
• Language: English
• Published: MDPI AG 2020-05-01
• Series: Sustainability
• Subjects: investor happiness; oil market; realized volatility; forecasting
• Online Access: https://www.mdpi.com/2071-1050/12/10/4309

We use the the heterogeneous autoregressive realized volatility (HAR-RV) model to analyze both in sample and out-of-sample whether a measure of investor happiness predicts the daily realized volatility of oil-price returns, where we use high-frequency intraday data to measure realized volatility. Full-sample estimates reveal that realized volatility is significantly negatively linked to investor happiness at a short forecast horizon. Similarly, out-of-sample results indicate that investor happiness significantly improves the accuracy of forecasts of realized volatility at a short forecast horizon. Results for a medium and a long forecast horizon are insignificant. We argue that our results shed light on the role played by speculation in oil products and the potential function of oil-related products as a hedge against risks in traditional financial assets.