Risk perception and oil and gasoline markets under COVID-19

Behzod B Ahundjanov; Sherzod B Akhundjanov; Botir B Okhunjanov

doi:10.1016/j.jeconbus.2020.105979

Risk perception and oil and gasoline markets under COVID-19

J Econ Bus. 2021 May-Jun:115:105979. doi: 10.1016/j.jeconbus.2020.105979. Epub 2021 Jan 4.

Authors

Behzod B Ahundjanov¹, Sherzod B Akhundjanov², Botir B Okhunjanov³

Affiliations

¹ Department of Economics, Bucknell University, United States.
² Department of Applied Economics, Utah State University, 4835 Old Main Hill, Logan, UT 84322-4835, United States.
³ School of Economic Sciences, Washington State University, United States.

Abstract

The novel coronavirus (COVID-19) exposed individuals to a great uncertainty about its health and economic ramifications, especially in the early days and weeks of the outbreak. This study documents oil and gasoline market implications of individuals' behavior upon such uncertainty by analyzing the relationship between Google search queries related to COVID-19-information search that reflects one's level of concern about the subject (risk perception)-and the performance of oil and gasoline markets during the pandemic. The empirical analysis based on daily data and a structural vector autoregressive model reveals that a unit increase in the popularity of COVID-19 related global search queries, after controlling for COVID-19 cases, results in 0.083% and 0.104% of a cumulative decline in Dow Jones US Oil & Gas Total index and New York Harbor Conventional Gasoline Regular spot price, respectively, after one day, 0.189% and 0.234% of a cumulative decline after one week, and 0.191% and 0.237% of a cumulative decline after two weeks. The reaction of Brent and West Texas Intermediate crude oil prices to the spike in COVID-19 related online searches is found to be statistically insignificant, which can be explained by oil price pass-through into gasoline spot price.

Keywords: Coronavirus; Energy markets; Gasoline prices; Google Trends; Oil prices; Risk perception.