Abstract
This paper sets out to explore the predictability of the U.S. equity risk premium directly based on investor attention to oil. We find that the predictive power of oil attention exhibits statistical and economic significance within different models in both in-sample and out-of-sample tests. Meanwhile, oil attention reveals considerable and robust economic value for asset allocation in the sense of positive utility gains. Furthermore, supportive evidence that oil attention is closely linked to stock market volatility endues it with a macroeconomic meaning, serving as an explanation for its predictive power. Overall, investor attention to oil does have a direct predictive power to forecast the U.S. stock excess returns.
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