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Infiniti Finance Conference, Le 10 Juin 2013, SciencesPo , Aix-en-Provence

NRGi : Building an Energy Sentiment Index NRGi : Construction d'un Indice de Confiance de l‘Energie. Infiniti Finance Conference, Le 10 Juin 2013, SciencesPo , Aix-en-Provence Peter Deeney *, Dublin City University Business School (DCUBS), Ireland Mark Cummins , DCUBS

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Infiniti Finance Conference, Le 10 Juin 2013, SciencesPo , Aix-en-Provence

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  1. NRGi: Building an Energy Sentiment IndexNRGi:Construction d'un Indice de Confiance de l‘Energie. Infiniti Finance Conference, Le 10 Juin 2013, SciencesPo, Aix-en-Provence 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

  2. What’s new?Quoi de neuf? • Use of a Sentiment Index for Energy Market • Utilisation d'un indice de confiance pour le marché de l'énergie • Use of Multiple Hypothesis Testing methods • Utilisation de Méthodes de contrôle à Hypothèses Multiples

  3. What is Sentiment?Quelest le sentiment? • The propensity to speculate (Baker and Wurgler, 2006) • La propension à spéculer • Optimism or pessimism (Baker and Wurgler, 2006) • L’optimismeou le pessimisme • A noisy signal which traders act upon (Brown, 1999) • Un signal bruyant sur lequel agissent les traders • Non-informational trading (Tetlock, 2007) • Echange non-informationnel • The gap between what we can explain and what we observe. • L’écart entre ce que on peut expliquer et ce que l'on observe • The rational or irrational beliefs of market participants regarding price movements. • Les croyances rationnelles ou irrationnelles des acteurs du marchéconcernant l’évolution des prix

  4. Hypothesis and NRGi Indices • Changes in sentiment, measured by the NRGi indices, can account for part of the changes in fuel prices. • Changements de sentiment, mesuré par les indices NRGi, peut expliquer en partie l’évolution des prix du petrole. • Speculation Volume of Futures Trades, Paper:Physical Volume des Échanges Futurs, Papier: Physique • Volatility VIX or VStoxx (V2X) • FearGold • Peur Or • Optimism Volume of Futures in ArcaIndex • Volume des Futures dans l’indice Arca

  5. NRGi Indices • Spec 1 = # non commercial oil options and futures on the NYMEX Demand for oil (Energy Intelligence Group) • Spec 2 = # non commercial oil futures on the NYMEX Demand for oil (Energy Intelligence Group) • Spec 3 = # Futures on WTI US Oil Production (Dept of Energy) • Volume of Futures in Arca Index, Bloomberg symbol XOI

  6. Principal ComponentsComposents Principaux • Brown and Cliff, 2004 and Baker and Wurgler, 2006 • Subsequent components will not change the betas or the significance by much. • Les composants suivants ne changeront pas les betas ou leur importance de façon signifiante. • 1stApproximately the mean of the NRGi proxies with a sign change for Arca Index (XOI) • 1er Approxativment la moyennes des NRGiproxies avec un changement de signe pour l'Indice Arca(XOI)

  7. Why is this sentiment?Pourquoi est-ce du Sentiment? Use of Proxies in Equity Research • Market Liquidity : Baker and Stein (2004) • Trading Volume : Baker and Wurgler (2007), Scheinkman and Xiong (2003) • Volatility Index : Simon and Wiggins (2001) • Stock Exchange Turnover : Canbas and Kandir (2009) • Discount on Closed End Funds : Neal and Wheatley (1998), Lee et al. (1991) • Ratio of Odd Lot Sales to Purchases : Brown and Cliff (2004) • Number and First day Returns of Initial Public Offerings: Baker and Wurgler (2006) • New Online Trading Accounts : Lu, Lai and Liang (2012) • Ticker Searches On Line: Joseph et al. (2007)

  8. Why is this sentiment?Pourquoi est-ce du sentiment? Comparison with Survey Data Comparaison avec données du sondage EU Surveys Sondages Union Européenne (UE) DG ECFIN European Commission consumer and business surveys. DG ECFIN Sondages consommateur et affaires de la CommisionEurpoéenne US Surveys SondagesEtats-Unis (EU) Purchasing Managers from New York and Chicago, University of Michigan Consumer Sentiment American Association of Individual Investors. Regressions • EU Survey (1) = -0.28 Brent NRGi (1) p value 0.0064* • US Survey (1) = -0.20 WTI NRGi(1)p value 0.0265 Correlations • [Brent NRGi(1), EU (1)]=-0.40; [WTI NRGi(1), US |(1)] = -0.61

  9. Results for Ln Returns of BrentRésultats pour Rendements Ln de Brent

  10. Results for ModelsRésultats par modèles

  11. Brent and its NRGi (1)

  12. Brent and its Survey (1)Brentet son sondage (1)

  13. Multiple Comparison ProblemProblème à comparaisons multiples

  14. Generalized Holm • Proposed by Lehmann and Romano, (2005) • Lower value of p required to avoid Multiple Comparison Problem. • Valeur inférieure de p nécessaire pour éviter le problème à Comparaison Multiple. • k- FWER = P[reject at least k null hypotheses which are true] • = P[rejeter au moins k hypothèses nulles qui sont vraies] • Significance level alpha set so that k-FWER < alpha, GH produces p value • Niveau d'importance alpha pour que k-FWER < alpha, GH produise la valeur p • No of hypotheses of 255, Alpha = 0.10 , k = 13 yields p = 0.0069, rejecting 66, • (Alpha = 0.05 p = 0.0034, 66 hypotheses; Alpha = 0.01 p = 0.0006, 44 rejections)

  15. Thank YouRemerciements • NRGi Energy Sentiment Index • Multiple Hypothesis Testing • Paper Available at www.peterdeeney.com

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