Abstract
In this paper, we employ a new dataset to measure the impact of investor sentiment regarding oil prices on the U.S. inflation premium. Our empirical analysis relies on Structural Vector Autoregression (SVAR) and out-of-sample forecasts. The results indicate that a one standard deviation positive shock to overall investor sentiment regarding oil prices results in a significant increase in the U.S. inflation premium by approximately 1.2% over the subsequent 10 weeks. Compared to individual investor sentiment, institutional investor sentiment regarding oil prices has a larger impact on the U.S. inflation premium. Finally, we find an out-of-sample evidence that the overall investor sentiment regarding oil prices has predictive power on the U.S. inflation premium.
•We use a new dataset to measure the impact of investor sentiment regarding oil prices on the U.S. inflation premium•Our results indicate that shocks to investor sentiment regarding oil prices results in the U.S. inflation premium increasing by approximately 1.2% over the subsequent 10 weeks.•We find out-of-sample evidence that the overall investor sentiment regarding oil prices has predictive power on the U.S. inflation premium.