News Media and Attention Spillover across Energy Markets: A Powerful Predictor of Crude Oil Futures Prices

Oguzhan Cepni, Duc Khuong Nguyen*, Ahmet Sensoy

*Corresponding author for this work

Research output: Working paperResearch

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Abstract

We develop two news-based investor attention measures from the news trends function of the Bloomberg terminal and investigate their predictive power for returns on crude oil futures contracts with various maturities. Our main results after controlling for relevant macroeconomic variables show that the Oil-based Institutional Attention Index is useful in predicting oil futures returns, especially during price downturn periods, while the forecasting accuracy is further improved when the Commodity Market Institutional Attention Index is used. This forecasting accuracy decreases, however, with the maturity of oil futures contracts. Moreover, we find some evidence of Granger-causality and regime-dependent interactions between investor attention measures and oil futures returns. Finally, variable selection algorithms matter before making predictions since they create the best forecasting results in many cases considered. These findings are important for informed traders and policymakers to better understand the price dynamics of the oil markets.
Original languageEnglish
Number of pages34
Publication statusPublished - 2021

Keywords

  • Crude oil returns
  • Destiny forecasting
  • Investor attention
  • Time-varying Granger causality
  • Variable selection

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