the heterogeneous dependence between global crude oil and chinese commodity futures markets evidence from quantile regression this paper explores the dependence between global crude oil and chinese commodity futures markets across different quantiles of the return distributions based on weekly data from 11 june 2004 to 7

contagion around the october 1987 stock market crash abstract this study investigates financial contagion among seven international stock markets around the october 19 1987 crash building on a recent advance in vector autoregression analysis by swanson n granger c w j 1997 impulse response functions based on a causal approach to residual orthogonalization in vector autoregression journal of the american statistical association 92 357 367 data determined historical decompositions are conducted to provide a day by day picture of price fluctuation transmission which is crucial to explore the financial contagion pattern characterized by rich dynamics the results clearly show that the crash originated in the us market and that an upward movement in the japanese market after the crash helped the recovery in the us market which has not yet been empirically documented in the literature

contagion as a wealth effect financial contagion is described as a wealth effect in a continuous time model with two risky assets and three types of traders noise traders trade randomly in one market long term investors provide liquidity using a linear rule based on fundamentals convergence traders with logarithmic utility trade optimally in both markets asset price dynamics are endogenously determined numerically as functions of endogenous wealth and exogenous noise when convergence traders lose money they liquidate positions in both markets this creates contagion in that returns become more volatile and more correlated contagion reduces benefits from portfolio diversification and raises issues for risk management during the f inancial panic associated with the default of the russian government in august 1998 and the subsequent collapse of the hedge fund long term capital management numerous hedge funds banks and securities firms tried simultaneously to reduce exposures to a variety of financial instruments such as russian bonds brazilian stocks u s mortgages spreads between on therun and off the run government securities and spreads between swaps and u s treasuries although the fundamental values of these positions would appear to have little correlation during this financial crisis the asset prices in these markets exhibited the following common empirical pattern 1 financial intermediaries suffered losses as prices moved against their positions 2 market depth and liquidity decreased simultaneously in several markets 3 the volatility of prices increased simultaneously in several markets and

after hours stock prices and post crash hangovers after hours pricing in foreign equity markets of multiple listed u s securities appeared to be efficient in predicting new york prices in the weeks immediately following the october 1987 crash but relatively uninformative in succeeding months by contrast daily changes in new york prices appear to be efficiently incorporated in after hours trading on both the tokyo and london exchanges throughout the sample period this paper suggests that the asymmetry and temporal variations in cross market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time varying share price volatility in the wake of the october 1987 crash a number of studies have provided evidence of significant international linkages among national equity markets where high frequency movements in the share price indices of national exchanges appear to induce sympathetic price movements in subsequent trading on other national exchanges however the cross market correlations are generally much larger in periods of extreme volatility and appear to subside to modest or even negligible associations during periods of more normal trading activity since the constituent stocks of national exchange indices are not identical it may be that the episodic increases in correlated movements of the indices are due to changes in the actual or perceived relative importance of common factors in periods of unusual volatility the thrust of this paper is to remove the issue of the disparate composition of the price indices of national exchanges by examining the prices of a set of

model choice and value at risk performance broad agreement exists among both the investment banking and regulatory communities that the use of internal risk management models is an efficient means for calculating capital risk requirements the determination of model parameters laid down by the basle committee on banking supervision as necessary for estimating and evaluating the capital adequacies however has received little academic scrutiny we investigate a number of issues of statistical modeling in the context of determining market based capital risk requirements we highlight several potentially serious pitfalls in commonly applied methodologies and conclude that simple methods for calculating value at risk often provide superior performance to complex procedures our results thus have important implications for risk managers and market regulators

spillovers from the usa to stock markets in asia a quantile regression approach this article analyses return spillovers from the usa to stock markets in asia by means of quantile regressions traditional studies consider spillovers as effects of the conditional means of foreign returns onto the conditional means of chronologically succeeding domestic markets returns we by contrast study the full range of quantiles of the conditional distribution of the domestic markets returns this enables us to document the detailed structure of spillovers across return quantiles generally we find spillovers from the usa to asia to be negative specifically however we reveal an asymmetric structure of spillovers with an increasing negative magnitude from lower to upper return quantiles theoretically this pattern is consistent with an asymmetric overreaction of traders in asia to news from the us market extensions from the baseline model further suggest the presence of contagion throughout the financial crisis of 2007 2008 as well as of calm down effects over weekends

measuring the subprime crisis contagion evidence of change point analysis of copula functions in this paper we first determine the existence of structural changes in the dependence between time series of equity index returns of two markets using the change point testing method the method is based on archimedean copula functions which are able to comprehensively describe dependence characteristics of random variables the degree of financial contagion between markets is subsequently estimated using the tail dependence coefficient of copula functions before and after the change point we empirically test our method by investigating financial contagion during the subprime crisis between the us s p 500 index and five asian markets namely china japan korea hong kong and taiwan our results show that a statistically significant change point exists in the dependence between the us market and all asian stock markets except taiwan the upper tail dependence is larger after the time of change implying the existence of contagion during the banking crisis between the us and the asian economies the degree of financial contagion is also estimated and found to be consistent with market events and media reports during that period

oil price shocks economic policy uncertainty and industry stock returns in china asymmetric effects with quantile regression abstract this paper investigates the impact of crude oil shocks and china s economic policy uncertainty on stock returns at different locations on the return distributions based on monthly data from 1995 1 to 2016 3 we address this issue by employing the quantile regression technique this approach enables a more detailed investigation in different market circumstances namely bearish normal and bullish markets empirical results indicate that the effects of oil price shocks and economic policy uncertainty are asymmetric and highly related to stock market conditions moreover both the nexus of oil and economic policy uncertainty stock are changed at the onset of a crisis specially rising oil prices have greater negative effects on stock returns when stock markets are bullish extreme higher quantiles before a crisis whereas the effects are significantly positive under different market conditions after the onset of the crisis falling oil prices lower stock returns when stock markets are bullish and normal before the crisis whereas lower stock returns under different market conditions except extreme bullish after the onset of the crisis these findings might be related to the optimistic or pessimistic investor sentiments and investors might become more frightened after the crisis

risk preference and the interindustry propensity to strike this paper presents a model of the determinants of a union s decision to strike the model states that assuming management is risk neutral workers tastes for risks will be one important determinant of the decision to strike a risk preference variable from the panel survey of income dynamics and an injury and illness rate for each of 89 manufacturing industries serve as measures of workers tastes for risk the model predicts that industries with high injury rates will experience a disproportionate share of strikes and that a greater share of weakly risk averse workers will be employed in strike prone industries than in strike free industries the author discovers strong support for the first prediction but not for the second

impacts of oil implied volatility shocks on stock implied volatility in china empirical evidence from a quantile regression approach abstract this paper investigates the impacts of changes in the implied volatility index of the oil market ovx on the changes in the implied volatility index of the chinese stock market vxfxi a quantile regression approach is applied to our empirical analysis as this approach can perform a more detailed investigation under different market conditions moreover we test whether the vxfxi changes would respond with lags and asymmetry to the ovx changes our empirical results show that the impacts of the ovx changes on the vxfxi changes are positive and tend to be stronger in bearish markets furthermore the results of testing lagged effects reveal that strong linkages between the two variables are transient in different market conditions which don t support the gradual information diffusion hypothesis very well finally we find that the ovx changes can asymmetrically affect the vxfxi changes specifically the negative ovx changes have stronger effects under bullish market conditions while the positive ovx changes play a more important role during bearish periods

the macroeconomic strike model a study of seventeen countries 1948 1975 this paper reports the results of an analysis of data on industrial conflict strikes and lockouts in seventeen oecd countries during the period 1948 75 a number of models are tested on this broad data set including the major elements of the ashenfelter and johnson model contrary to ashenfelter and johnson s results for the united states this study finds for most countries a positive relationship between the number of conflicts and the rate of increase in real wages in manufacturing further the increase in nominal wages produces stronger results in all models tested than the increase in real wages the effect of unemployment is unstable across countries and only one of two political variables yields even modest results the authors suggest that an explanation of their findings might be found in the relationship between changes in the wage structure and changes in the level of conflict

the structure and degree of dependence a quantile regression approach abstract the copula function defines the degree of dependence and the structure of dependence this paper proposes an alternative framework to decompose the dependence using quantile regression we demonstrate that the methodology provides a detailed picture of dependence including asymmetric and non linear relationships in addition changes in the degree or structure of dependence can be modeled and tested for each quantile of the distribution the empirical part applies the framework to three different sets of financial time series and demonstrates substantial differences in dependence patterns among asset classes and through time the analysis of 54 global equity markets shows that detailed information about the structure of dependence is crucial to adequately assess the benefits of diversification in normal times and crisis times

bayesian time varying quantile forecasting for value at risk in financial markets recently advances in time varying quantile modeling have proven effective in financial value at risk forecasting some well known dynamic conditional autoregressive quantile models are generalized to a fully nonlinear family the bayesian solution to the general quantile regression problem via the skewed laplace distribution is adapted and designed for parameter estimation in this model family via an adaptive markov chain monte carlo sampling scheme a simulation study illustrates favorable precision in estimation compared to the standard numerical optimization method the proposed model family is clearly favored in an empirical study of 10 major stock markets the results that show the proposed model is more accurate at value at risk forecasting over a two year period when compared to a range of existing alternative models and methods

asymmetric over and undershooting of major exchange rates evidence from quantile regressions abstract this paper uses quantile regression techniques to investigate the temporal dependence patterns of major exchange rates around the globe specifically we estimate quantile autoregressive models for daily exchange rate returns of the usd eur usd jpy usd gbp usd aud usd chf and usd cad exchange rates between 1999 and 2014 testing for the equality of cross quantile effects we reveal substantial state dependence in the return dynamics in particular we find that large us dollar appreciations tend to exhibit positive dependence on past returns whereas large us dollar depreciations tend to exhibit negative dependence on past returns around central return quantiles however there is virtually no evidence for significant temporal dependence exceptions from this pattern are only apparent for the usd jpy and the usd chf exchange rate theoretically our results point to the presence of over and undershooting in terms of asymmetric exchange rate adjustment to previous day information

does the basle capital accord reduce bank fragility an assessment of the value at risk approach abstract we examine the economic implications arising from a bank using a var constrained mean variance model for the selection of its trading portfolio as a consequence of the basle capital accord surprisingly we show that when a var constraint is imposed it is plausible that certain banks will end up selecting riskier portfolios than they would have chosen in the absence of the constraint accordingly regulators such as the basle committee on banking supervision should be aware that allowing a bank to use var to determine its minimum regulatory capital may increase its fragility alternatives to var based bank capital regulation that mitigate or even preclude its perverse implications are presented

a new approach to measuring financial contagion this article proposes a new approach to evaluate contagion in financial markets our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions we characterize the extent of contagion its economic significance and its determinants using a multinomial logistic regression model applying our approach to daily returns of emerging markets during the 1990s we find that contagion is predictable and depends on regional interest rates exchange rate changes and conditional stock return volatility evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed

returns synchronization and daily correlation dynamics between international stock markets the use of close to close returns underestimates returns correlation because international stock markets have different trading hours with the availability of 16 00 london time stock market series we find dynamics of daily correlation and covariance estimated using two non synchroneity adjustment procedures to be substantially different from their synchronous counterparts conditional correlation may have different signs depending on the model and data type used other findings include volatility spillover from the us to the uk and france and a reverse spillover which is not documented before also unlike previous findings we found the increase in daily correlation is prominent only under extremely adverse conditions when a large negative return has been registered

the effects of automobile strikes on the stock value of steel suppliers this analysis of stock market data for the years 1965 90 indicates that upon announcements of automobile strikes steel suppliers experienced statistically significant negative returns about equal to the negative returns experienced by the struck automobile producers significantly larger negative interindustry effects were associated with large multi plant strikes than with smaller one plant strikes and the negative effects were significantly greater in the later years of the sample period a time of relatively weak financial condition than in the earlier years a time of stronger financial condition the author concludes that researchers and policy makers evaluating the private and social costs of strikes should consider adverse effects on the profitability not only of the struck industries but also of linked industries and should take into account the important roles of strike size and industry financial health

economic implications of using a mean var model for portfolio selection a comparison with mean variance analysis abstract we relate value at risk var to mean variance analysis and examine the economic implications of using a mean var model for portfolio selection when comparing two mean variance efficient portfolios the higher variance portfolio might have less var consequently an efficient portfolio that globally minimizes var may not exist surprisingly we show that it is plausible for certain risk averse agents to end up selecting portfolios with larger standard deviations if they switch from using variance to var as a measure of risk therefore regulators should be aware that var is not an unqualified improvement over variance as a measure of risk

effect of strike activity on firm value the article examines the stock market s reaction to labor management problems and employee strikes a discussion is presented about various categories of strike costs and cumulative abnormal return

influencing factors on electricity demand in chinese nonmetallic mineral products industry a quantile perspective abstract chinese nonmetallic mineral products industry is one of the largest electricity consumer in china and has a large impact on overall electricity consumption in china this paper examines the impact of economic variables on the demand for electricity in chinese nonmetallic mineral products industry where economic growth sectoral value added per worker sectoral r d intensity and energy price were utilized to analyze sectoral electricity consumption with an application of quantile model the paper s estimates unveiled the varying effects of economic variables across the spectrum of sectoral electricity consumption where the coefficient of economic growth was positive and significant across all quantiles while sectoral value added per worker had both positive and negative significant coefficients an increase in income level and sectoral value added per worker will increase the electricity consumed by the industry however the latter will also enhance a decreasing trend in few regions across china and did not influence high energy efficiency but rather enhanced the production of additional outputs while sectoral r d intensity and energy price will ensure a substantial decrease in sectoral electricity consumption with the latter having a greater impact increase in investment for sectoral r d intensity will boost technological advancement and is recommended as a cornerstone to ensuring decline in sectoral energy consumption that will buttress sectoral value added per worker coupled with a robust energy price

causality in quantiles and dynamic stock return volume relations abstract this paper investigates the causal relations between stock return and volume based on quantile regressions we first define granger non causality in all quantiles and propose testing non causality by a sup wald test such a test is consistent against any deviation from non causality in distribution as opposed to the existing tests that check only non causality in certain moment this test is readily extended to test non causality in different quantile ranges in the empirical studies of three major stock market indices we find that the causal effects of volume on return are usually heterogeneous across quantiles and those of return on volume are more stable in particular the quantile causal effects of volume on return exhibit a spectrum of symmetric v shape relations so that the dispersion of return distribution increases with lagged volume this is an alternative evidence that volume has a positive effect on return volatility moreover the inclusion of the squares of lagged returns in the model may weaken the quantile causal effects of volume on return but does not affect the causality per se

value at risk and inventory control the purposes of this paper are two fold on the one hand we shall provide a decision analysis justification for the value at risk var approach based on ex post disappointment decision making arguments we shall show that the var approach is justified by a disappointment criterion in other words the asymmetric valuation between ex ante expected returns above an appropriate target return and the expected returns below that same target level provide an explanation for the var criterion when it is used as a tool for var efficiency design second this paper provides applications to inventory management based on var risk exposure although the mathematical problems arising from an application of the var approach tuned to current practice in financial risk management are difficult to solve analytically solutions can be found by application of standard computational and simulation techniques a number of cases are solved and formulated to demonstrate the paper s applicability

the contagion channels of july august 2011 stock market crash a dag copula based approach abstract the objective of this paper is to empirically investigate whether there is a contagion phenomenon between the stock markets during the july august 2011 stock market crash when there is a market contagion we will identify the propagation channel through which the crash is transmitted hence after checking if there is financial contagion between the stock markets we will see if the transmission mechanism constraints of wealth outweighs that of the portfolio rebalancing an additional test covering the interdependence between the stock and bond markets during the crash helps us verify whether the transmission is due either to the cross market rebalancing channel or to the flight to quality phenomenon on the basis of the combination of the copula theory and the directed acyclic graph to study the structure of causal dependence between the stock market during the period that lies between 01 02 2010 and 28 11 2012 we show that the links between countries are different between the pre crash period and that of the crash more specifically the links that do not exist during normal times seem to have a major role during the crash period we interpret this result as an evidence of the existence of pure contagion on the one hand the tests show that the channel of the portfolio rebalancing was the major mechanism for the spread of the crash on the other hand the phenomenon of the cross market rebalancing existed only in germany whereas that of the flight to quality was in all the other studied stock markets

from value at risk to stress testing the extreme value approach this article presents an application of extreme value theory to compute the value at risk of a market position in statistics extremes of a random process refer to the lowest observation the minimum and to the highest observation the maximum over a given time period extreme value theory gives some interesting results about the distribution of extreme returns in particular the limiting distribution of extreme returns observed over a long time period is largely independent of the distribution of returns itself in financial markets extreme price movements correspond to market corrections during ordinary periods and also to stock market crashes bond market collapses or foreign exchange crises during extraordinary periods an approach based on extreme values to compute the var thus covers market conditions ranging from the usual environment considered by the existing var methods to the financial crises which are the focus of stress testing univariate extreme value theory is used to compute the var of a fully aggregated position while multivariate extreme value theory is used to compute the var of a position decomposed on risk factors 2000 elsevier science b v all rights reserved

quantifying market risk with value at risk or expected shortfall consequences for capital requirements and model risk the basel committee on banking supervision recently proposed fundamental changes in the regulatory treatment of financial institutions trading book positions among others a replacement of value at risk 0 99 by expected shortfall 0 975 for the quantification of market risk is recommended while this increases capital requirements for heavy tailed risks its consequences for model risk related to the estimation process have not been explored hence the aim of this paper is to analyze how both risk measures react to different sources of model risk in order to better understand the impact of the intended change in risk measures our results show that the expected shortfall 0 975 is more sensitive towards regulatory arbitrage and parameter misspecification we find that this is based on a trade off between a model s ability to better capture the heavy tailed behavior of risks and a higher vulnerability to model risk these new aspects should be taken into account in the regulatory decision for expected shortfall 0 975

systemic risk spillovers between crude oil and stock index returns of g7 economies conditional value at risk and marginal expected shortfall approaches abstract in this study we examine systemic risk and dependence between oil and stock market indices of g7 economies between january 2003 and november 2017 coincidentally this timeframe covers different distress periods in financial and energy markets we use several time constant time varying and time varying markov copula models to examine the dependence further we use the delta conditional value at risk covar of adrian and brunnermeier 2016 and marginal expected shortfall mes of acharya et al 2012 to captures the risk spillover effects and give evidence of systemic risk from the copula analysis we find dissimilar dependence structure between returns series of oil and the g7 stock markets for france germany and japan the dependence is markov switching time varying while it is time varying for the united states and canada constant for the united kingdom and around zero for italy our empirical evidence on systemic risk indicates that oil price dynamics contributes significantly more to the g7 stock market returns during volatile times than during tranquil times in particular the canada stock market appears more sensitive and vulnerable to negative external shocks emerging from the crude oil market than the other markets further the country risk rankings identified using mes and covar may not be identical in addition the analysis results suggest that the crude oil market can be a good diversifier for investors in japan and france and that the investors in the rest of g7 countries must act more carefully

shareholder wealth effects of legislative events the case of airline deregulation this paper presents empirical evidence about the impact on shareholder wealth of legislative events leading to the enactment of the airline deregulation act of 1978 in contrast to prior regulatory event studies this paper examines not only the final legislative enactment but also the congressional hearings that preceded it no significant effect on shareholder wealth is indicated when averaged across all airline firms and all legislative events impact of deregulation however was expected to be different for trunk airlines than for local airlines moreover market expectations likely changed with the change in the political climate during the course of deregulation deliberations from an industry financial health emphasis under a republican ford administration to a consumer welfare emphasis under a democratic carter administration we find that trunk airlines experienced significant positive abnormal returns during the ford administration but negative abnormal returns during the carter administration in contrast local airlines exhibited significant negative abnormal returns during both the ford and carter eras systematic risk of both trunk and local airlines also increased with the change in the political climate

accuracy of mortgage portfolio risk forecasts during financial crises abstract this paper explores whether factor based credit portfolio risk models are able to predict losses in severe economic downturns such as the recent global financial crisis gfc within standard confidence levels the paper analyzes i the accuracy of default rate forecasts and ii whether forecast downturn percentiles value at risk var are sufficient to cover default rate outcomes over a quarterly and an annual forecast horizon uninformative maximum likelihood and informative bayesian techniques are compared as they imply different degrees of uncertainty we find that quarterly var estimates are generally sufficient but annual var estimates may be insufficient during economic downturns in addition the paper develops and analyzes models based on auto regressive adjustments of scores which provide a higher forecast accuracy the consideration of parameter uncertainty and auto regressive error terms mitigates the shortfall

risk transmission mechanism between energy markets a var for var approach abstract the global financial crisis gfc of 2007 2009 that originated in the us has revealed the need for measuring and monitoring the transmission of extreme downside market risk this paper investigates the risk transmission mechanism between the oil and natural gas markets we apply the recently introduced test statistics based on cross quantilogram function and the multivariate quantile regression model var for var to the us oil and natural gas prices which are independently formed our results show two asymmetric patterns first the shocks in the oil market substantially increase the value at risk var in the natural gas market but the reverse impact does not exist second we highlight the significant asymmetric response of gains and losses transmission in energy markets cautioning about the underlying weakness of adopting volatility to measure risk in the energy market moreover an extreme market risk is more easily transmitted across markets than moderate risks our results are in general robust in application to other regional energy markets such as europe and asia but the heterogeneities in responses are underpinned by the different role of natural gas in regions the findings in this paper have important implications for academic researchers policy makers in gas dependent economies and business practitioners in light of projected increases in the use of natural gas worldwide as well as the development of independent gas on gas competitive hub prices in asia and europe

the heterogeneity dependence between crude oil price changes and industry stock market returns in china evidence from a quantile regression approach this paper explores the dependence between real crude oil price changes and chinese real industry stock market returns based on the monthly data from 1994 03 to 2014 06 we address this issue using the quantile regression approach enabling a more detailed investigation of structure and degree of dependence empirical results reveal that the reaction of market returns to crude oil is highly heterogeneous across conditional distribution of industry stock returns furthermore there is evidence that this dependence is positive and exists only in recessions or bearish markets with low expected returns the dependence at low quantiles is not limited to one market but is a common feature across industries additionally dependence also changes since the onset of structural breaks we determine that chinese industry stock and global crude oil markets have contagion in rare situations most cases do not demonstrate contagion

did residential electricity rates fall after retail competition a dynamic panel analysis abstract a key selling point for the restructuring of electricity markets was the promise of lower prices there is not much consensus in earlier studies on the effects of electricity deregulation in the u s particularly for residential customers part of the reason for not finding a consistent link with deregulation and lower prices was that the removal of transitional price caps led to higher prices in addition the timing of the removal of price caps coincided with rising fuel prices which were passed on to consumers in a competitive market using a dynamic panel model we analyze the effect of participation rates fuel costs market size a rate cap and switch to competition for 16 states and the district of columbia we find that an increase in participation rates price controls a larger market and high shares of hydro in electricity generation lower retail prices while increases in natural gas and coal prices increase rates we also find that retail competition makes the market more efficient by lowering the markup of retail prices over wholesale costs the effects of a competitive retail electricity market are mixed across states but generally appear to lower prices in states with high participation rates

the impact of power market reforms on electricity price cost margins and cross subsidy levels a cross country panel data analysis abstract one of the main expectations from power market reform has been a reduction in both price cost margins and cross subsidy levels between industrial and residential consumers this paper focuses on this issue by looking at the impact of the electricity industry reforms on residential and industrial electricity price cost margins and their effect on cross subsidy levels between consumer groups using panel data for 63 developed and developing countries covering the period 1982 2009 empirical models are developed and analyzed the research findings suggest that there is no uniform pattern for the impact of reform process as a whole on price cost margins and cross subsidy levels each individual reform step has different impact on price cost margins and cross subsidy levels for each consumer and country group our findings imply that reform steps have different impacts in different countries which supports the idea reform prescription for a specific country cannot easily and successfully be transferred to another one so transferring the formal and economic structure of a successful power market in a developed country to developing countries is not a sufficient condition for good economic performance of the electricity industries in developing countries furthermore the study suggests that power consumption income level and country specific features constitute other important determinants of electricity price cost margins and cross subsidy levels

the benefits from international diversification for nordic investors abstract in this paper we investigate the magnitude of the benefits from international diversification from the nordic point of view special attention is paid to whether potentially increased co movement of stock markets together with more volatile nordic currencies have resulted in decreased benefits from international diversification towards the end of the 1980s moreover the paper presents evidence on the benefits from international diversification for a currency which has recently started its free float the finnish markka fim we find significant increases in stock market co movement both unhedged ex ante strategies as well as strategies hedged for exchange rate risk are investigated revealing substantial benefits from international diversification for the nordic countries however we obtain mixed results concerning the question of the optimality of hedging

active portfolio management with benchmarking adding a value at risk constraint abstract we examine the impact of adding a value at risk var constraint to the problem of an active manager who seeks to outperform a benchmark while minimizing tracking error variance tev by using the model of roll 1992 a mean variance analysis of tracking error journal of portfolio management 18 13 22 we obtain three main results first portfolios on the constrained mean tev boundary still exhibit three fund separation but the weights of the three funds when the constraint binds differ from those in roll s model second the constraint mitigates the problem that when an active manager seeks to outperform a benchmark using the mean tev model he or she selects an inefficient portfolio finally when short sales are disallowed the extent to which the constraint reduces the optimal portfolio s efficiency loss can still be notable but is smaller than when short sales are allowed

the impact of regulatory quality and corruption on residential electricity prices in the context of electricity market reforms abstract the european electricity markets have been undergoing significant regulatory reforms since the introduction of the first liberalisation directive in 1996 theory predicts that liberalisation promotes cost efficient production and competition and hence leads to lower prices the goal of this paper is to assess the impact of regulatory quality and non compliance with the law on electricity prices in the context of electricity market reforms we address problems of endogeneity by using the blundell blond system gmm estimator and find that vertical integration and market concentration lower end user prices all else equal moreover improving regulatory quality and reducing corruption both have a negative impact on prices when holding other factors constant the intensity of the reforms has limited impact on electricity prices when these reforms are introduced in an institutional environment characterised by high levels of corruption and low quality regulation

us consumers willingness to pay for green electricity abstract we analyze us consumers demand for environmental attributes of deregulated residential electricity services using results from a survey designed to elicit consumers willingness to pay for such attributes and using results from a hedonic analysis of actual price premiums charged for green electricity in several deregulated markets survey results suggest that many population segments are willing to pay for decreased air emissions even if there is no alteration in fuel source furthermore several groups are willing to pay significantly more when emissions reductions stem from increased reliance upon renewable fuels the hedonic analysis suggests that several product features not considered in the survey help explain real price premiums including fuel mix from newly created renewable generation capacity green e certification brand name and state of offer while survey and hedonic results are not easily compared due to limitations of the survey both point to similar values for key environmental attributes though the survey results are likely to overstate actual willingness to pay in sum the results suggest that consumer driven purchases can in part support the future of renewable generation capacity in the united states though reliance upon other policy alternatives may be needed if energy prices spike

var seductive but dangerous value at risk var has gained rapid acceptance as a valuable approach to risk management not all vars are equal however a study of var techniques used by dealers and end users reveals that var calculations differ significantly for the same portfolio vars are extremely dependent on parameters data assumptions and methodology calculation of eight common vars for three hypothetical portfolios demonstrates the potentially seductive but dangerous nature of any single approach to risk management in sum although var and other quantitative techniques are necessary aspects of an effective risk management program they are not sufficient to control risk

has electric utility restructuring led to lower electricity prices for residential consumers in texas this paper analyzes the determination of residential electricity prices in the competitive electric reliability council of texas ercot market this analysis suggests that electricity restructuring in texas has not yet resulted in lower prices for the majority of residential energy consumers in areas open to competition contrary to common expectations residential electricity costs for consumers at a typical 1000 kwh per month consumption level have increased at a greater rate in the areas of texas offering retail choice than in the areas of the state where retail competition has not been introduced

when unions mattered the impact of strikes on financial markets 1925 1937 this examination of the stock market s responsiveness to strikes looks specifically at strike actions that labor historians generally view as the major ones occurring in the united states in the years 1925 37 the authors find that strikes had large negative effects on industry stock value longer strikes violent strikes strikes in which unions won industry wide strikes strikes that led to union recognition and strikes that led to large wage increases were associated with larger negative share price reactions than were other strikes much of the news generated by the typical strike seems to have been registered by the stock market very early in the strike however there were also some fairly large stock price reactions to news that could be fully revealed only at the end of a strike

student t distribution based var mgarch an application of the dcc model on international portfolio risk management significant second moment transmission effects and obvious time varying patterns of correlation coefficients among major equity and currency markets in the us japan and the uk are found to exist such observations inspire the time varying setting of dynamic conditional correlation coefficients in mgarch models on the other hand the multivariate student t distribution is suitable for analysing the visible leptokurtosis that is common in financial markets both are important for international portfolio risk management thus a comparison on the hedging efficiency of hypothetical portfolios consisting of stock and currency future positions is conducted in order to justify the multivariate student t distribution based on the dcc mgarch model

unconditional return disturbances a non parametric simulation approach abstract simulation methods are extensively used in asset pricing and risk management the most popular of these simulation approaches the monte carlo requires model selection and parameter estimation in addition these approaches can be extremely computer intensive historical simulation has been proposed as a non parametric alternative to monte carlo this approach is limited to the historical data available in this paper we propose an alternative historical simulation approach given a historical set of data we define a set of standardized disturbances and we generate alternative price paths by perturbing the first two moments of the original path or by reshuffling the disturbances this approach is either totally non parametric when constant volatility is assumed or semi parametric in presence of garch 1 1 volatility without a loss in accuracy it is shown to be much more powerful in terms of computer efficiency than the monte carlo approach it is also extremely simple to implement and can be an effective tool for the valuation of financial assets we apply this approach to simulate pay off values of options on the s p 500 stock index for the period 1982 2003 to verify that this technique works the common back testing approach was used the estimated values are insignificantly different from the actual s p 500 options payoff values for the observed period

structure and performance global interdependence of stock markets around the crash of october 1987 using a new data source on share price indices this paper finds no evidence that the substantial variations in the reactions to the crash of october 1987 across countries are related to the structure of markets however trading halts and capital controls on residents may have moderated the speed of declines in some markets the paper also examines one measure of interlinkages between markets the trading of foreign stocks on domestic markets and finds this to be closely related to interdependence between markets

risk2 measuring the risk in value at risk the recent derivatives disasters have focused the attention of the finance industry on the need to control financial risks better this search has led to a uniform measure of risk called value at risk var which is the expected worst loss over a given horizon at a given confidence level var numbers however are themselves affected by sampling variation or estimation risk thus the risk in value at risk itself nevertheless given these limitations var is an indispensable tool to control financial risks this article lays out the statistical methodology for analyzing estimation error in var and shows how to improve the accuracy of var estimates

common trends and convergence south east asian equity markets 1988 1999 abstract this paper uses two different estimation approaches to demonstrate that equity markets in south east asia have shown signs of converging during the 1990s according to the haldane and hall economic journal 101 436 443 1991 method of measuring convergence a subset of asian markets had converged by mid 1997 this process appears to have been abruptly halted and somewhat reversed by the recent financial crisis we find that in general there are two common trends present in the eight asian equity market indices modeled here and also two trends when the us market is additionally included in a johansen var

a primer on financial contagion abstract this paper presents a theoretical framework to highlight possible channels for the international transmission of financial shocks we first review the different definitions and measures of contagion adopted by the literature we then use a simple multi country asset pricing model to classify the main elements of the current debate on contagion and provide a stylized account of how a crisis in one country can spread to the world economy in particular the model shows how crises can be transmitted across countries without assuming ad hoc portfolio management rules or market imperfections finally tracking our classification we survey the results of the empirical literature on contagion

multivariate cointegration analysis of the finnish japanese stock markets abstract in this paper evidence on the cointegration between the finnish and japanese financial markets is provided the results obtained by multivariate cointegration analysis indicate that changes in the nikkei financial market have an impact on the error correction mechanism of the finnish stock market

stock market crashes and the performance of circuit breakers empirical evidence this study examines the behavior of a small stock market with circuit breakers and with a one hour preauction order imbalance disclosure during the october 1987 crash the crash and its aftershocks lasted for a week and selling pressure was concentrated in higher beta larger capitalization and lower leverage firm stocks circuit breakers when implemented reduced the next day opening order imbalance and the initial price loss however they had no effect on the long run response some price overreaction and reversal phenomena also are documented

did the expiration of retail price caps affect prices in the restructured texas electricity market on january 1 2007 the electric reliability council of texas ercot market became the first restructured market in the us to completely remove caps on the prices which could be charged to residential energy consumers by the retailers associated with the traditional or incumbent utility service providers our analysis suggests that the expiration of the price to beat ptb price caps may have led to a reduction in the average prices charged by competitive retail electric providers reps

the effects of estimation error on measures of portfolio credit risk abstract this paper uses monte carlo simulations to assess the impact of noisy input parameters on the accuracy of estimated portfolio credit risk assumptions about input quality are derived from the distribution of historical sample statistics commonly used in default risk modelling the resulting estimation error in the distribution of portfolio losses is considerable losses that are judged to occur with a probability of 0 3 may actually occur with a probability of 1 the paper also shows that estimation error leads to biases in value at risk estimates and significance levels of backtests the biases can be corrected by analysing predictive distributions which average over the unknown parameter values

contagion and trade why are currency crises regional abstract currency crises tend to be regional they affect countries in geographic proximity this suggests that patterns of international trade are important in understanding how currency crises spread above and beyond any macroeconomic phenomena we provide empirical support for this hypothesis using data for five different currency crises in 1971 1973 1992 1994 and 1997 we show that currency crises affect clusters of countries tied together by international trade by way of contrast macroeconomic and financial influences are not closely associated with the cross country incidence of speculative attacks

correlated arch corrarch modelling the time varying conditional correlation between financial asset returns abstract although the time variation of the conditional correlations of asset returns is a well established stylized fact and of crucial importance for efficient financial decisions there is no explicit general model available for its estimation and forecasting in this paper we propose a bivariate garch covariance structure in which conditional variances can follow any garch type process while conditional correlation is generated by an explicit discrete time stochastic process the corrarch process a high order corrarch can parsimoniously be represented by a corgarch process the model successfully generates the reported stylized facts establishes an autocorrelation structure for correlations and thus provides an explicit framework for out of sample forecasting we provide empirical evidence from the g7 stock market indexes

time varying quantile association regression model with applications to financial contagion and var abstract this paper develops a quantile association regression model which is able to capture the dynamic quantile dependence in the tails of conditional distributions the association measure the quantile specific odds ratio qor captures the tendency of two random variables being simultaneously below specific quantiles it is independent of marginal distributions and invariant to monotonic transformation and enjoys methodological advantages over popular alternatives such as the copula the ability of the qor measure to capture and forecast a range of different dependence structures is first shown via simulations in the financial application we implement the model and compute the qor on a daily basis to assess contagion for 10 stock markets during two recent crises our empirical results show that contagion exists during the us banking crisis between the us and all tested markets and between greece and the tested european markets during the euro crisis hence the model is able to capture the changes in quantile dependence between stock markets and offer a vivid description of market events in addition the model provides an accurate valuation of daily value at risk var

extreme coexceedances in new eu member states stock markets abstract we analyze the financial integration of the new european union eu member states stock markets using the negative positive coexceedance variable that counts the number of large negative large positive returns on a given day across the countries a similar analysis is performed for the old eu countries we use a multinomial logit model to investigate how persistence asset classes and volatility are related to the coexceedance variables we find that the effects differ a between negative and positive coexceedance variables b between old and new eu member states and c before and after the eu enlargement in 2004 suggesting a closer connection of new eu stock markets to those in western europe

international diversification a copula approach abstract the viability of international diversification involves balancing benefits and costs this balance hinges on the degree of asset dependence in light of theoretical research linking diversification and dependence we examine international diversification using two measures of dependence correlations and copulas we document several findings first dependence has increased over time second we find evidence of asymmetric dependence or downside risk in latin america but less in the g5 the results indicate very little downside risk in east asia third east asian and latin american returns exhibit some correlation complexity interestingly the regions with maximal dependence or worst diversification do not command large returns our results suggest international limits to diversification they are also consistent with a possible tradeoff between international diversification and systemic risk

effects of regulatory reforms in the electricity supply industry on electricity prices in developing countries electric power sector reforms in the electricity supply industry have had an impact on industrial and household prices in developing countries in latin america the former soviet union and eastern europe using original panel data for 83 countries during the period from 1985 to 2002 we examine how each policy instrument of the reform measures influenced electricity prices for countries in the above regions we found that variables such as entry of independent power producers ipp unbundling of generation and transmission establishment of a regulatory agency and the introduction of a wholesale spot market have had a variety of impacts on electricity prices some of which were not always consistent with expected results the research findings suggest that neither unbundling nor introduction of a wholesale pool market on their own necessarily reduces the electric power price in fact contrary to expectations there was a tendency for the price to rise however coexistent with an independent regulator unbundling may work to reduce electricity prices privatization and the introduction of foreign ipp and retail competition lower electricity prices in some regions but not all

some contagion some interdependence more pitfalls in tests of financial contagion this paper develops a test of contagion in financial markets based on bivariate correlation analysis which generalizes existing tests and applies it to the international effects of the hong kong stock market crisis of october 1997 contagion is defined as a structural break in the international transmission of financial shocks for plausible values of the variance of country specific shocks in hong kong our test finds evidence of contagion for 5 countries out of a sample of 17 this is in sharp contrast with the findings of recent literature according to which there is no contagion only interdependence we show that this strong result in the literature is due to arbitrary and unrealistic restrictions on the variance of country specific shocks

explaining co movements between stock markets the case of us and germany abstract we explain co movements between stock markets by explicitly considering the distinction between interdependence and contagion we propose and implement a full information approach on data for us and germany to provide answers to the following questions i is there long term interdependence between us and german stock markets ii is there short term interdependence and contagion between us and german stock markets i e do short term fluctuations of the us share prices spill over to german share prices and is such co movement unstable over high volatility episodes our answers are respectively no to the first question and yes to the second one

the impact of strikes on shareholder equity from an analysis of data for 1962 82 the authors find that strikes substantially affect shareholder equity as measured by the change in stock prices associated with strikes over that period the a

retail competition in electricity supply survey results in north carolina residential retail competition in electricity supply was introduced in many countries and some us states as part of electricity industry deregulation following problems in the electricity market in california in 2000 2001 many us states including north carolina suspended their deregulation agenda recent technological advances have made competition more viable so we ask if nc should reconsider deregulation and retail competition the welfare benefits will depend on consumers willingness to switch suppliers and the potential for value added innovations in electricity and industries such as pay tv and telecommunications consumers are sticky remaining with their current supplier even though rivals offer savings moreover some analysts question the likelihood of significant welfare improvements from retail competition we survey residents in two nc counties focusing on i households knowledge of and interest in retail competition ii factors that would encourage them to switch suppliers and iii the required savings to encourage switching about 50 65 of respondents would favor retail competition in nc demographic variables and experience switching in other industries affect opinions and the savings required to incent switching we conclude the estimated rate reduction to encourage competitive switching will be hard to achieve in nc as long as rates remain below the national average

is the international propagation of financial shocks non linear evidence from the erm abstract this paper tests for the presence of non linearities in the propagation of devaluation expectations among the countries that were members of the exchange rate mechanism of the ems we show that whenever it is possible to estimate a model for financial interdependence a full information technique to detect such non linearities is more efficient than the limited information estimator proposed in a similar context by rigobon 2000 this happens in particular when the periods of market turbulence are relatively short our evidence suggests that non linearities in the propagation of devaluation expectations were a general phenomenon in the erm normally the non linearity amounts to a stronger effect in the same direction but sometimes as in the dutch case it implies a significant effect in the opposite direction evidence of flight to quality

the determinants of strikes in the united states 1900 1977 this study aims to assess the recent debate that has emerged in the literature over the economic and organizational political models of strikes and to propose and test a synthesis of those models as an explanation for the pattern of strike activity in the united states since 1900 the paper begins with a review of strike activity in the post 1900 period and then develops a conceptual framework incorporating six factors the size of union membership economic conditions political events institutional arrangements psychological variables and the extent of rival unionism to explain this historical pattern the second part of the paper contains a regression analysis of strike activity over the 1900 1977 period the regression results show that both the economic factors of unemployment and inflation and various noneconomic factors such as changes in union membership the outbreak of world war ii and enactment of new deal legislation are significant in explaining variations in strike activity during t

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments

the effects of oil price shocks on asian exchange rates evidence from quantile regression analysis abstract this paper investigates the effects of oil price shocks on asian exchange rates we employ quantile regression analysis and allow for structural breaks and asymmetry our results indicate that positive and negative oil price shocks have asymmetrical effects on exchange rate returns that vary in significance size and sign throughout the distribution of exchange rate returns the impact of oil price shocks is also affected by market conditions bearish and bullish currency markets during bullish markets in domestic currencies at lower quantiles of currency movements in terms of u s dollar exchange rates rising oil prices cause further appreciation for indonesia korea the philippines and thailand currencies during bearish markets in the domestic currencies at higher quantiles of exchange rate movements in terms of u s dollar exchange rates rising falling oil price causes further currency depreciation for indonesia malaysia thus currencies respond differently to oil price shocks under extreme bullish or bearish currency market conditions and the impact of rising or falling oil prices on foreign exchange markets can vary by country and market conditions

asymmetric effects of geopolitical risks on energy returns and volatility under different market conditions abstract based on daily data from 28 june 1990 to 31 october 2018 we investigate the asymmetric effects of geopolitical risks on energy crude oil gas and heating oil returns and volatility under different market conditions by using a quantile regression model the results show that geopolitical risks have significantly negative effects on crude oil returns in the bearish market and on heating oil returns in the normal and bullish markets but have no effects on gas returns meanwhile the impacts of geopolitical risks on crude oil volatility are significantly positive in different market conditions and the impacts on gas and heating oil volatility are mainly negative but not significant in addition we further divide geopolitical risks into geopolitical threats and geopolitical acts and find that geopolitical threats and acts have heterogeneous effects on energy returns and volatility