Semester

Spring

Date of Graduation

2020

Document Type

Dissertation

Degree Type

PhD

College

Chambers College of Business and Economics

Department

Finance

Committee Chair

Alexander Kurov

Committee Member

Eric Olson

Committee Member

Ann Marie Hibbert

Committee Member

Arabinda Basistha

Abstract

This dissertation includes three essays investigating topics relevant to the energy markets. The first essay employs a new dataset to measure the impact of investor sentiment regarding oil prices on the U.S. inflation premium. The empirical analysis relies on Structural Vector Autoregression (SVAR) and out-of-sample forecasts. The results indicate that a one standard deviation positive shock to overall investor sentiment regarding oil prices results in a significant increase in the U.S. inflation premium by approximately 1.2% over the subsequent 10 weeks. Compared to individual investor sentiment, institutional investor sentiment regarding oil prices has a larger impact on the U.S. inflation premium. Finally, the study finds out-of-sample evidence that the overall investor sentiment regarding oil prices has predictive power on the U.S. inflation premium.

The second essay uses sequential energy inventory announcements to shed new light on the informational efficiency of financial markets. The findings provide clear evidence of inefficiency in oil futures and stock markets. This inefficiency can be exploited by sophisticated traders. The study further examines the effect of market conditions, such as liquidity and oil attention, on the efficient incorporation of information in this setting. It also constructs a predictor that can predict inventory surprises and pre-announcement returns in-sample and out-of-sample. Finally, it develops a combination forecast that can be used as a proxy for market expectations of oil inventory announcements.

The third essay examines the impact of oil shocks on sovereign credit default swaps (CDS) for the G10 countries and major oil-exporting countries. The results show that oil demand shocks have a uniformly negative impact on CDS spreads. In contrast, oil supply shocks increase the spreads of the G10 countries, but reduce the spreads of oil-exporting countries. Using quantile regressions, the study finds that oil demand shocks affect spreads across the conditional distribution, while oil supply shocks mostly influence the upper quantiles of spread changes. Furthermore, a two-state Markov-switching modeling confirms a significant non-linearity in the impact of oil shocks

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