Media Sentiment and Oil Price Expectations

This paper sheds new light on oil market dynamics by investigating the role of media-based sentiments in expectation building from several perspectives. We adopt both survey- and market-based expectation measures and analyze the effects of different sentiment indicators on (i) expectations, (ii) forecast errors, and (iii) disagreement among forecasters using data from 1998 to 2020, while also taking into account different media sources and nonlinear effects. We find that media sentiments affect expectations and survey-based uncertainty measures that extend beyond information embedded in past prices, with positive (negative) sentiment resulting in lower (higher) expected oil prices. Media coverage can also affect disagreement and tends to increase forecast errors. The adjustment of expectations to sentiment news tends to be stronger for negative news and conventional news sources compared to social media. JEL Classification: G40 Behavioral Finance: General; Q40 Energy: General; Q47 Energy Forecasting