Journal
QUANTITATIVE FINANCE
Volume 19, Issue 8, Pages 1357-1371Publisher
ROUTLEDGE JOURNALS, TAYLOR & FRANCIS LTD
DOI: 10.1080/14697688.2019.1581368
Keywords
Investor sentiment; Extreme risk; Crude oil market; Wavelet
Categories
Funding
- National Natural Science Foundation of China [71273028, 71322103, 71774051]
- National Program for Support of Top-notch Young Professionals of China [W02070325]
- Changjiang Scholars Program of the Ministry of Education of China [Q2016154]
- Hunan Youth Talent Program
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Investor sentiment has become an important factor affecting oil price volatility and extreme risk. Therefore, we utilise a VaR-GARCH model to detect the extreme risk of the crude oil market during 2007-2017, and then explore the causality between investor sentiment and extreme risk in the crude oil market, and their lead-lag and co-movement relationships in the time-frequency domain. The empirical results show that: firstly, investor sentiment leads downside risk but lags the upside risk in the crude oil market; secondly, in the time domain, there is a co-movement between investor sentiment and extreme risk in the crude oil market, in particular, investor sentiment may Granger cause extreme risk in the crude oil market at the 1% significance level but not vice versa; thirdly, in the frequency domain, weak coherence can be found in high-frequency bands but increases in low-frequency bands during the whole sample period, which indicates that the impact of investor sentiment on extreme risk in the crude oil market will last for a long time, although the affected period tends to decrease.
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