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NRGi. Building an Energy Sentiment Index Peter Deeney * , Dublin City University Business School (DCUBS), Ireland Mark Cummins , DCUBS Adam Bermingham ,** DCU School of Computing Michael Dowling , DCUBS
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NRGi Building an Energy Sentiment Index Peter Deeney*, Dublin City University Business School (DCUBS), Ireland Mark Cummins, DCUBS Adam Bermingham,** DCU School of Computing Michael Dowling, DCUBS *This material is based upon works supported by Dublin City University under the Daniel O'Hare Research Scholarship scheme. **CLARITY, Centre for Sensor Web Technologies, School of Computing, DCU, Dublin, Ireland. Work supported by Science Foundation Ireland under grant 07/CE/I1147
What’s new? • Use of a Sentiment Index for Energy Market • Use of Multiple Hypothesis Testing methods
What is Sentiment? • The propensity to speculate (Baker and Wurgler, 2006) • Optimism or pessimism (Baker and Wurgler, 2006) • A noisy signal which traders act upon (Brown, 1999) • Non-informational trading (Tetlock, 2007) • The gap between what we can explain and what we observe. • The rational or irrational beliefs of market participants regarding price movements.
Hypothesis and NRGi Indices • Changes in sentiment, measured by the NRGiindices, can account for part of the changes in fuel prices. • Speculation Volume of Futures Trades, Paper:Physical • Volatility VIX or V2X • Fear Gold • Optimism Volume of Futures in Arca Index
Principal Components • Brown and Cliff, 2004 and Baker and Wurgler,2006 • Subsequent components will not change the betas or the significance by much. • 1stApproximately the mean of the NRGi proxies with a sign change for Arca Index (XOI)
Generalized Holm • Proposed by Lehmann and Romano, (2005) • Lower value of p required to avoid Multiple Comparison Problem. • k- FWER = P[reject at least k null hypotheses which are true] • Significance level alpha set so that k-FWER < alpha, GH produces p value • Alpha = 0.05 , k = 3 yields p = 0.0058, rejecting 28 hypotheses • (Alpha = 0.04, k = 2 yields p = 0.0031, rejecting 28 hypotheses)
Thank You • NRGi Energy Sentiment Index • Multiple Hypothesis Testing • Paper Available at www.peterdeeney.com