Financial ambiguity and oil prices
Year: 2024
Type: article
Abstract: Recent theoretical developments in economics distinguish between risk and ambiguity (Knightian uncertainty). Using state-of-the-art methods with intraday stock market data from February 1993 to February 2021, we derive financial ambiguity and empirically examine the effect of shocks to it on the price and volatility of crude oil. We provide evidence that ambiguity carries important information about future oil returns and volatility perceived by investors. We validate these results using Granger causality and in-sample and out-of-sample forecasting tests. Our findings reveal that financial ambiguity is a possible factor that explains future drops in oil prices and their increased variability. Our findings will benefit scholars and investors interested in how financial ambiguity shapes short-term oil prices.
Source: Financial Innovation
Authors: Mahmoud Ayoub, Mahmoud Qadan
Institution: University of Haifa
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4401487537