Macro Fundamentals or Geopolitical Events? A Textual Analysis of News Events for Crude Oil

61 Pages Posted: 21 Feb 2019 Last revised: 7 Mar 2019

See all articles by Michael W. Brandt

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Lin Gao

Universite du Luxembourg; Luxembourg School of Finance

Date Written: November 27, 2018

Abstract

News about macroeconomic fundamentals and geopolitical events affect crude oil markets differently. Using sentiment scores for a broad set of global news of different types, we find that news related to macro fundamentals have an impact on the oil price in the short run and significantly predict oil returns in the long run. Geopolitical news have a much stronger immediate impact but exhibit no predictability. Moreover, geopolitical news generate more uncertainty and greater trading volume, consistent with a disagreement explanation, while macroeconomic news are associated with subsequent lower trading volume. Finally, we find that news sentiment tracks the statistical releases quite well and can partially predict the future realizations of the economic data.

Keywords: Crude Oil, News Analytics, Sentiment, Information

JEL Classification: G12, G13

Suggested Citation

Brandt, Michael W. and Gao, Lin and Gao, Lin, Macro Fundamentals or Geopolitical Events? A Textual Analysis of News Events for Crude Oil (November 27, 2018). Journal of Empirical Finance, vol. 51, pp.64-94, 2019, Available at SSRN: https://ssrn.com/abstract=3330728 or http://dx.doi.org/10.2139/ssrn.3330728

Michael W. Brandt (Contact Author)

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Durham, NC 27708-0120
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Gao

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Luxembourg School of Finance ( email )

4, rue Albert Borschette
Luxembourg, 1246
Luxembourg

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