Oil market narratives and their economic effect

This supports Shiller’s (2017) suggestion that narratives with investors interest are relevant to economic fluctuation. I find that negative geopolitical narratives and geopolitical narratives coverage impact oil returns positively. Analysis shows that the reaction is immediate and does not reverse the following days.

This impact is indeed on average larger in magnitude during geopolitical events. I also find oil narratives’ impact extends beyond the oil market as there is a significant robust relationship between oil media narratives and both the overall stock risk and returns, and renewable energy companies’ returns. The impact of oil narratives on renewable energy stock returns is significant only when associated with oil shocks that are caused by concerns in the shortfall of oil supply due to geopolitical events.

These findings serve as evidence for Shiller’s hypothesis that media can hype the market through spreading narratives to all the market’s investors during state of economic uncertainty such as an oil shock.<br>