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NRGi

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

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  1. 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

  2. What’s new? • Use of a Sentiment Index for Energy Market • Use of Multiple Hypothesis Testing methods

  3. 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.

  4. 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

  5. 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)

  6. Results for Ln Returns of Brent

  7. Results for Models

  8. Brent and its NRGi (1)

  9. Brent and its Survey (1)

  10. Multiple Comparison Problem

  11. 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)

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

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