Investor Sentiment Based on the Crude Oil Business Cycle

The study of business cycles is important because economic planning does not make sense without understanding how GDP fluctuates and the root of these fluctuations. Therefore, making attempts to recognize the structure of business cycles fluctuations created in the economy can help us improve the decision making process. The greater the economic fluctuations or business cycles, the more instability in the economy, and investors can't predict a clear image of the future. The purpose of the current study was to investigate the effects of Iran crude oil business cycles on the 266 companies in Iran stock exchange during the period from 2005 to 2015. Thus, the crude oil business cycle was calculated using Hedrick Prescott filter and then the effects of crude oil business cycle was on the investors' sentiments was estimated using Generalized Method of Moments (GMM) approach. The results of the study indicated that when the crude oil business cycle shows a boom, investors' sentiments is greater than the time when the crude oil business cycle shows a period of recession; meaning that the crude oil boom leads to an increase in investor sentiments.