Fear of Hazards in Commodity Markets
Research by Adrian Fernandez-Perez, Ph.D., Auckland University of Technology, New Zealand; Ana-Maria Fuertes, Ph.D., Cass Business School, City University of London, U.K.; Marcos Gonzalez-Fernandez, Ph.D., University of León, Spain and Joëlle Miffre, Ph.D., Audencia Business School, Nantes, France
This paper examines the predictive content of active attention to “hazard fear” which is proxied by changes in the volume of internet search queries (or “active attention”) by 149 weather, disease, geopolitical or economic terms. A long-short portfolio strategy that sorts the cross-section of commodity futures by a hazard fear signal – inferred from the co-movement of past excess returns with “active attention” – is able to capture an economically and statistically significant premium. The hazard fear premium is significantly greater in periods of higher financial investor pessimism which reveals a channel for the transmission of sentiment to commodity futures markets.
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