How does investor attention affect international crude oil prices?

Abstract

In order to investigate the impacting mechanism of investors’ attention and crude oil prices, we construct a direct, timely and unambiguous proxy for investor attention in crude oil market by aggregating the Google search volume index (GSVI). Based on the GSVI, we employ the Structural Vector Autoregression (SVAR) model to empirically explore the impact of investor attention on WTI crude oil price from January 2004 to November 2016. The results indicate that: (1) investor attention does have significant negative impact on WTI crude oil price during the sample period; (2) investor attention shocks contributes 15% to the long-run fluctuation of WTI crude oil price during the sample period, which is second only to that of supply shocks (69%) among the contributors concerned; and (3) when the business cycle stays in expansion, it has positive influence on both investor attention and WTI crude oil price. Meanwhile, our robustness check, using Brent crude oil price and a different construction form of the GSVI, confirms that the central results are reliable.