Attention! Predicting crude oil prices from the perspective of extreme weather

Abstract

Using big data text technology, our paper constructs an Extreme Weather Attention index (EWA) to analyze its impact on crude oil prices, contributing to climate finance and behavioral finance research. Grounded in limited attention theory, EWA's influence on oil pricing is examined through investor attention. In-sample results show EWA as a significant positive predictor for long-term oil prices, with extreme weather affecting supply and demand. Out-of-sample tests reveal EWA's limited short-term prediction ability, but its accuracy in medium and long-term forecasts can yield substantial economic benefits for investors.