Bulls or Bears
how does investor sentiment shape energy profit spreads?
DOI:
https://doi.org/10.29015/cerem.1036Keywords:
Bulls, Bears, investors’ sentiment, profit spread, Impact, MIDASAbstract
Aim: The purpose of this study is to look into how investor sentiment affected the profit spreads of three significant oil and gas companies from 2014 to 2024: PB PLC, Exxon Mobil, and Chevron. The study investigates the relationship between investor sentiment and market performance, especially during times of global upheaval like the COVID-19 pandemic and the crisis in Russia and Ukraine.
Design / Research methods: The study evaluates the correlation between daily profit spreads and weekly investor sentiment indices using a Mixed Data Sampling (MIDAS) regression framework. Analysis is done on data from January 2014 to May 2024. To assess the MIDAS model’s performance and explanatory power, the results are contrasted with those of conventional linear regressions.
Conclusions / findings: The findings show a complicated and firm-specific relationship between profit spreads and investor sentiment. However, there are mixed positive and negative MIDAS regression coefficients for lagged sentiment. Because of its strong mean reversion and emphasis on long-term projects, Chevron exhibits little sensitivity. Although the direction and interpretation are still unclear, Exxon Mobil exhibits some notable sentiment effects. The oil and gas industry’s long-term orientation is reflected in PB PLC’s inconsistent sentiment effects. In general, it seems that investor sentiment has little effect on daily stock prices, but it might have a more subtle effect on profit spreads.
Originality / value of the article: By integrating high-frequency sentiment data into asset pricing models, this paper adds to the expanding body of research on behavioural finance. In a turbulent decade characterised by pandemics and war, it employs the MIDAS approach in a novel way to evaluate the sentiment-profitability relationships among three multinational oil companies
JEL: C32, C58, G11, G12, G14, Q40.
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