Impact of geopolitical risks on investor attention and speculation in the oil market: Evidence from nonlinear and time-varying analysis

This paper investigates the impact of geopolitical risks on investor attention and speculation in the oil market using the causality tests and the time-varying parameter vector autoregression model. In particular, we consider two types of geopolitical risks: acts and threats. The empirical results based on the sample from 2004 to 2021 show that geopolitical acts and threats linearly and nonlinearly cause investor attention. They can also affect speculation through the causality from investor attention to speculation. Based on the time-varying parameter vector autoregression model, we further find that geopolitical acts and threats present positively time-varying effects on investor attention. Speculation responses to geopolitical acts and threats are heterogeneous over time. Moreover, the impact of investor attention on speculation is time-varying but positive, indicating that geopolitical risks can increase speculation through investor attention. Our findings are important to policymakers and investors, as they reveal potential associations of geopolitical risks with investor attention and speculation.