Sample interview questions: How would you approach analyzing the impact of investor sentiment on commodity markets?
Sample answer:
Analytical Approach to Assessing Investor Sentiment’s Impact on Commodity Markets:
1. Sentiment Indicators:
- Market Sentiment Indices: Use established indices like the CBOE Market Volatility Index (VIX) or the CNN Fear & Greed Index to gauge overall investor sentiment.
- Sentiment Analysis of News and Social Media: Monitor news articles, social media posts, and analyst reports for keywords and phrases that reflect investor optimism or pessimism.
- Surveys and Polls: Conduct surveys or polls among market participants to directly measure their sentiment towards specific commodities.
2. Impact on Demand and Supply:
- Price Movements: Sentiment can drive short-term price fluctuations, with positive sentiment leading to increased demand and higher prices.
- Risk Aversion: When sentiment turns negative, investors tend to reduce exposure to riskier assets like commodities, leading to decreased demand and lower prices.
- Contango and Backwardation: Sentiment can influence the shape of the futures curve, with positive sentiment favoring contango (higher future prices) and negative sentiment favoring backwardation (lower future prices).
3. Behavioral Biases:
- Herding Behavior: Investors may follow the crowd and buy or sell commodities based on the sentiment of others, amplifying market movements.
- Overconfidence:<... Read full answer
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