Abstract
Investor sentiment is one of the non-fundamental factors that affect the financial markets, which itself is influenced by various factors, including oil price changes. This study aims to investigate the impact of oil price on investor sentiment in stock market industries in the Tehran Stock Exchange (TSE) using monthly data from April 2010 to June 2020. To investigate this issue, stock exchange industries were grouped into three categories: total industries, oil-related industries, and non-oil industries, and the effect of oil prices on investor sentiments in these three groups was examined using the pooled mean group (PMG) technique. The PMG approach considers both the short- and long-run relation between series and provides reliable results in the context of dynamic heterogeneous panel models. The implementation of PMG in all three models shows the impact of oil prices on investor sentiment over both the short and long run. Findings suggest also that oil price has positive and significant in all three models in the long run and the oil price coefficient is higher in oil-related industries than non-oil-related industries. These results are the opposite of the results obtained by similar studies, which can be due to the special features of countries, e.g. being oil exporters or oil importers
Highlights
Crude oil is a strategic resource in international trade and plays a central role in the global economy (Gong and Lin, 2017; He, 2020)
To eliminate the bias caused by heterogeneous slopes in dynamic panel models such as the Generalized Method of Moments (GMM) with a long time horizon, Pesaran and Smith (1995) and Pesaran, Shin, and Smith (1999) presented two estimators: the Mean Group (MG) and the Pooled Mean Group (PMG)
In the pooled mean group (PMG) method, the intercepts, short-term coefficients, and residual variances can vary in the mean groups, but in this method, no restrictions are applied in the long-term coefficients so that they are the same across the groups
Summary
Crude oil is a strategic resource in international trade and plays a central role in the global economy (Gong and Lin, 2017; He, 2020) This substance has both a commodity property and financial property (Du et al, 2016; Filis et al, 2011). The relationship between oil price and investor sentiment has been investigated from two perspectives These studies were mainly focused on the impact of investor sentiment on oil prices, assuming that it affects oil prices through real economic factors and speculation and is a predictor of future macroeconomic conditions (e.g., Du & Zhao, 2017; Qadan & Nama, 2018). The basic idea is that oil market fluctuations are transmitted to the economic and financial system, influencing investor sentiment and decisions (He, 2020)
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