The tail dependence structure between investor sentiment and commodity markets

Abstract

A growing body of literature considers investor sentiment as the partial driver of change in commodity prices. In contrast with previous studies that have almost exclusively focused on linear relationship, this empirical paper investigates the entire dynamic dependence of the quantile of investor sentiment and that of ten important commodities. To do so, we use the novel quantile cross-spectral dependence approach of Baruník and Kley (2019) and the nonparametric causality-in-quantiles test proposed by Balcilar et al. (2017a) over the period 1998–2018. Overall, the results show that the inter-dependence between sentiment and commodity differs according to return quantile and time frequency.

Can news-based economic sentiment predict bubbles in precious metal markets?

“…The price bubbles of these commodities are associated with negative sentiment, suggesting that bearish sentiment induces great investment and demand for the most expensive metals (i.e., gold and platinum), thereby creating pressure on their prices and eventually producing bubbles. As bearish sentiment is likely to occur during market stress, our findings align with the flight-to-safety argument about investing in these metals (Hillier et al 2006 ; Baur and McDermott 2010 ; Maghyereh and Abdoh 2020 ). Speculation may also contribute to bubble creation when speculators buy gold and platinum at a price above their fundamental values, anticipating a subsequent capital gain.…”

Price overreactions in the commodity futures market: An intraday analysis of the Covid-19 pandemic impact

“… Salisu et al (2020) construct a global fear index for the Covid-19 pandemic and show that it has predictive power for commodity prices as commodity returns are positively associated with Covid-19 related fear increases. In addition, Maghyereh and Abdoh (2020) find that investor sentiment has an impact on commodity prices. Furthermore, Adekoya and Oliyide (2020) show a Granger causality from the Covid-19 pandemic (measured by the growth rate of the number of cases and infectious diseases-based equity market volatility) to the volatility connectedness between commodities and financial markets.…”

Public attention, oil and gold markets during the COVID-19: Evidence from time-frequency analysis

“… Zhang et al (2022) find that during the COVID-19 pandemic, the return and volatility spillovers from epidemic-related news to the crude oil and gold markets are different in both time and frequency. Maghyereh and Abdoh (2020) argue that the inter-dependence between sentiment and commodity, including crude oil and gold, differs according to time and frequency. Besides, time-frequency dependence has been demonstrated to exist between crude oil and gold markets ( Hu et al, 2020 ; Hung and Vo, 2021 ; Li et al, 2021 ; Ding et al, 2021 ), between investor attention and crude oil markets ( Abdelhedi and Boujebene-Abbes, 2020 ; Chen et al, 2022 ), as well as between investor attention and gold markets ( Su and Li, 2020 ; Zhang et al, 2022 ).…”