do global risk perceptions influence world oil prices abstract this paper investigates the information transmission mechanism between world oil gold silver dollar euro exchange rate markets and volatility index vix accommodating for global risk perceptions we find that there is a unique long run equilibrium relationship where gold silver exchange rate and risk perceptions appear as long run forcing variables of world oil prices we uncover that global risk perceptions have a significantly suppressing effect on oil prices in the long run we also discover that global risk perceptions play a less important role in explaining the forecast error variance of oil prices in the short run than prices in the alternative investment markets our results also suggest that a shock in risk perceptions of global investors have a negative but short lived initial impact on oil prices

index investment and financialization of commodities the authors found that concurrent with the rapidly growing index investment in commodity markets since the early 2000s prices of non energy commodity futures in the united states have become incr

connectedness of economic policy uncertainty and oil price shocks in a time domain perspective abstract in this paper we investigate causality and connectedness between economic policy uncertainty and oil price shocks across time scales by incorporating the wavelet approach into the structural vector autoregression var framework proposed by diebold and yilmaz 2009 2012 2014 we find that crude oil prices behave like receivers of information from economic policy uncertainty regardless of time scale however the causality relationship between economic policy uncertainty and oil price shocks intensifies as time scales increase in addition the connectedness relationship is robust to time scale changes whereas the causal relationship intensifies as time scales increase notably the weight of us economic policy uncertainty increases in the var system as time scales increase in particular we employ the west texas intermediate wti crude oil price as an alternative measure to increase the robustness of our results and identify differences in the var system overall the total connectedness of the wti crude oil price is lower than that of the brent crude oil price regardless of time scale our results provide meaningful information for both investors and policymakers

roughing it up including jump components in the measurement modeling and forecasting of return volatility a rapidly growing literature has documented important improvements in financial return volatility measurement and forecasting via use of realized variation measures constructed from high frequency returns coupled with simple modeling procedures building on recent theoretical results in barndorff nielsen and shephard 2004a 2005 for related bi power variation measures the present paper provides a practical and robust framework for non parametrically measuring the jump component in asset return volatility in an application to the dm exchange rate the s p500 market index and the 30 year u s treasury bond yield we find that jumps are both highly prevalent and distinctly less persistent than the continuous sample path variation process moreover many jumps appear directly associated with specific macroeconomic news announcements separating jump from non jump movements in a simple but sophisticated volatility forecasting model we find that almost all of the predictability in daily weekly and monthly return volatilities comes from the non jump component our results thus set the stage for a number of interesting future econometric developments and important financial applications by separately modeling forecasting and pricing the continuous and jump components of the total return variation process

when will occur the crude oil bubbles abstract in this paper we apply a recursive unit root test to investigate whether there exist multiple bubbles in crude oil price the method is best suited for a practical implementation of a time series and delivers a consistent date stamping strategy for the origination and termination of multiple bubbles the empirical result indicates that there exist six bubbles during 1986 2016 when the oil price deviate from its intrinsic value based on market fundamentals specifically oil price contains the fundamentals and bubble components the dates of the bubbles correspond to specific events in the politics and financial markets the authorities should actively fight speculative bubbles or just observe their evolutions and speculation activities may decrease which is favour of the stabilisation of the staple commodities including crude oil price these findings have important economic and policy implications to recognise the cause of bubbles and take corresponding measures to reduce the impact on the real economy cause of the fluctuation of crude oil price

speculative bubbles in recent oil price dynamics evidence from a bayesian markov switching state space approach abstract motivated by repeated spikes and crashes during previous decades we investigate whether the heavily financialized market for crude oil has been driven by speculative bubbles in our theoretical modeling we draw on the convenience yield approach in order to approximate the fundamental value of the oil price we separate the oil price fundamental from the bubble component by expressing a standard present value oil price model in state space form we then introduce two markov regimes into the state space representation in order to distinguish between two distinct phases in the bubble process namely one in which the oil price bubble is a stable process and one in which the bubble explodes we estimate the entire markov switching state space specification using an econometrically robust bayesian markov chain monte carlo mcmc methodology based on inferential techniques designed for statistically separating both markov regimes in the bubble process from each other we find robust evidence for the existence of speculative bubbles in recent oil price dynamics

a comparison of the effects of exogenous oil supply shocks on output and inflation in the g7 countries a comparison of the effects of exogenous shocks to global crude oil production on seven major industrialized economies suggests a fair degree of similarity in the real growth responses an exogenous oil supply disruption typically causes a temporary reduction in real gdp growth that is concentrated in the second year after the shock inflation responses are more varied the median cpi inflation response peaks after three to four quarters exogenous oil supply disruptions need not generate sustained inflation or stagflation typical responses include a fall in the real wage higher short term interest rates and a depreciating currency with respect to the dollar despite many qualitative similarities there is strong statistical evidence that the responses to exogenous oil supply disruptions differ across g7 countries for suitable subsets of countries homogeneity cannot be ruled out a counterfactual historical exercise suggests that the evolution of cpi inflation in the g7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production consistent with a monetary explanation of the inflation of the 1970s there is no evidence that the 1973 1974 and 2002 2003 oil supply shocks had a substantial impact on real growth in any g7 country whereas the 1978 1979 1980 and 1990 1991 shocks contributed to lower growth in at least some g7 countries jel e31 e32 q43

explaining crude oil prices using fundamental measures abstract oil is the world s most important commodity and improving the understanding of drivers of its price is a longstanding research objective this article analyses real oil prices during 1984 2007 using a monthly dataset of fundamental and market parameters that cover financial markets global economic growth demand and supply of oil and geopolitical measures the innovation is to incorporate proxies for speculative and terrorist activity and dummies for major industry events and quantify price impacts of each new findings are positive links between oil prices and speculative activity bond yields an interaction term incorporating opec market share and oecd import dependence and the number of us troops and frequency of terrorist attacks in the middle east shocks also prove significant with a 6 18 per barrel impact on price for several months

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

humps in the volatility structure of the crude oil futures market new evidence abstract this paper analyses the volatility structure of commodity derivatives markets the model encompasses hump shaped unspanned stochastic volatility which entails a finite dimensional affine model for the commodity futures curve and quasi analytical prices for options on commodity futures using an extensive database of crude oil futures and futures options spanning 21 years we find the presence of hump shaped partially spanned stochastic volatility in the crude oil market the hump shaped feature is more pronounced when the market is more volatile and delivers better pricing as well as hedging performance under various dynamic factor hedging schemes

the economic value of co movement between oil price and exchange rate using copula based garch models article i nfo the us dollar is used as the primary currency of international crude oil trading as such the recent substantial depreciation in the us dollar has resulted in a corresponding increase in crude oil prices in addition oil price and exchange rate returns have been shown to be skewed and leptokurtic and to exhibit an asymmetric or tail dependence structure therefore this study proposes dynamic copula based garch models to explore the dependence structure between the oil price and the us dollar exchange rate more importantly an asset allocation strategy is implemented to evaluate economic value and confirm the efficiency of the copula based garch models in terms of out of sample forecasting performance a dynamic strategy based on the cgarch model with the student t copula exhibits greater economic benefits than static and other dynamic strategies in addition the positive feedback trading activities are statistically significant within the oil market but this information does not enhance the economic benefits from the perspective of an asset allocation decision finally a more risk averse investor generates a higher fee for switching from a static strategy to a dynamic strategy based on copula based garch models

oil price shocks and stock markets in the u s and 13 european countries abstract oil price shocks have a statistically significant impact on real stock returns contemporaneously and or within the following month in the u s and 13 european countries over 1986 1 2005 12 norway as an oil exporter shows a statistically significantly positive response of real stock returns to an oil price increase the median result from variance decomposition analysis is that oil price shocks account for a statistically significant 6 of the volatility in real stock returns for many european countries but not for the u s increased volatility of oil prices significantly depresses real stock returns the contribution of oil price shocks to variability in real stock returns in the u s and most other countries is greater than that of interest rate an increase in real oil price is associated with a significant increase in the short term interest rate in the u s and eight out of 13 european countries within one or two months counter to findings for the u s and for norway there is little evidence of asymmetric effects on real stock returns of positive and negative oil price shocks for oil importing european countries

interaction between oil and us dollar exchange rate nonlinear causality time varying influence and structural breaks in volatility abstractthis article examines the nonlinear granger causality and time varying influence between crude oil prices and the us dollar usd exchange rate using the hiemstra and jones hp test the diks and panchenko dp test and the time varying parameter structural vector autoregression model by applying the iterated cumulative sums of squares icss algorithm and the dcc garch model the effects of structural breaks in volatility of the two markets are also investigated the empirical analysis indicates that first crude oil prices are the nonlinear granger cause of the usd exchange rate but not vice versa second the usd exchange rate exerts a stronger and more stable negative influence on crude oil prices in the short term and the influence gradually weakens after 2012 finally ignoring structural breaks can increase the negative volatility correlation between the oil and usd exchange rate markets which is particularly remarkable during the financial crisis

rational destabilizing speculation positive feedback trading and the oil bubble of 2008 abstract this article examines how the interaction of different participants in the crude oil futures markets affects the crude oil price efficiency normally the commercial market participants such as oil producers and oil consumers act as arbitrageurs and ensure that the price of crude oil remains within the fundamental value range however institutional investors that invest in crude oil to diversify their portfolios and or hedge inflation can destabilize the interaction among commercial participants and liquidity providing speculators we argue that institutional investors can impose limits to arbitrage particularly during the financial crisis when the investment demand for commodities is particularly strong in support we show that commercials hedgers had significantly reduced their short positions leading to the 2008 oil bubble they were potentially aggressively offsetting their short hedges as a result by essentially engaging in a positive feedback trading commercial hedgers at least contributed to the 2008 oil bubble these findings have been mainly overlooked by the existing research

disentangling the determinants of real oil prices in this study we quantify the impacts of economic fundamentals and derivative market speculation on the real price of crude oil using a structural var with sign restriction we determine that oil demand from the us and china particularly the latter one plays a crucial role in oil price changes after the year 2000 the contribution of speculation does not exceed 10 of oil price variations in our sample period

correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies abstract in this paper multivariate garch models are used to model conditional correlations and to analyze the volatility spillovers between oil prices and the stock prices of clean energy companies and technology companies four different multivariate garch models bekk diagonal constant conditional correlation and dynamic conditional correlation are compared and contrasted the dynamic conditional correlation model is found to fit the data the best and generates results showing that the stock prices of clean energy companies correlate more highly with technology stock prices than with oil prices on average a 1 long position in clean energy companies can be hedged for 20 cents with a short position in the crude oil futures market

oil price forecastability and economic uncertainty information on economic policy uncertainty does matter in predicting the change in oil prices we compare the forecastability of standard bayesian and time varying var against univariate models the time varying var model outranks all alternative models over the period 2007 1 2014 2

speculative trading and oil price dynamic a study of the wti market abstract the aim of this paper is to study the oil price dynamic in west texas intermediate wti market in the us by using statistical and econometric tools we first attempt to identify the long term relationship between wti spot prices and the prices of futures contracts on the new york mercantile exchange nymex subsequently we model the short term dynamic between these two prices and this analysis points up several breaks on this basis a short term markov switching vectorial error correction model ms vecm with two distinct states standard state and crisis state has been estimated finally we introduce the volumes of transactions observed on the nymex for the wti contracts and we estimate the influence of the non commercial players we conclude that the hypothesis of an influence of non commercial players on the probability for being in the crisis state cannot be rejected in addition we show that the rise in liquidity of the first financial contracts as measured by the volume of open interest is a key element to understand the dynamics in market prices

capacity investment timing by start ups and established firms in new markets we analyze the competitive capacity investment timing decisions of both established firms and start ups entering new markets which have a high degree of demand uncertainty firms may invest in capacity early when uncertainty is high or late when uncertainty has been resolved possibly at different costs established firms choose an investment timing and capacity level to maximize expected profits whereas start ups make those choices to maximize the probability of survival when a start up competes against an established firm we find that when demand uncertainty is high and costs do not decline too severely over time the start up takes a leadership role and invests first in capacity whereas the established firm follows by contrast when two established firms compete in an otherwise identical game both firms invest late we conclude that the threat of firm failure significantly impacts the dynamics of competition involving start ups this paper was accepted by yossi aviv operations management

crude oil commodity or financial asset abstract we examine the relation among daily returns to crude oil prices equity prices and commodity markets by modifying previous efforts in two important ways expanding the model to include the equity price for an oil producing firm conocophillips which ameliorates omitted variable bias and estimating the expanded model using the kalman filter which reduces uncertainty associated with ols estimates from rolling windows consistent with the notion of a commodity price beta for oil industry stocks there is a positive correlation between returns to the spot price of wti and conocophillips this correlation indicates not all price changes in crude oil are expected to persist indeed some of the price reductions associated with the asian financial crisis and the price increase associated with the 2008 price spike are not included in our estimate for long run prices in 2008 q4 the correlations between daily returns to crude oil and equities flip from negative to positive we hypothesize that this flip is triggered by a large reduction in interest rates in the fourth quarter of 2008 which is associated with a reduction in convenience yields and a change from backwardation to contango in futures markets these changes increase the returns to holding crude oil as a financial asset relative to holding oil as a commodity

changes in the effects of monetary policy on disaggregate price dynamics abstract based on a time varying factor augmented vector autoregression we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures while many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample there is no evidence of a price puzzle at the aggregate level the share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards there also is evidence of a substantial decline in the dispersion of disaggregate price responses over time this gradual decrease in cross sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level we illustrate by means of a multi sector sticky price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics

the effect of the financial sector on the evolution of oil prices analysis of the contribution of the futures market to the price discovery process in the wti spot market abstract the aim of this article is to empirically measure the contribution of the futures market to the price discovery process in the spot market for benchmark crude oils specifically that for west texas intermediate wti for this purpose we test the hypothesis that the recent evolution of the financial markets has affected the future oil market so as to increase its contribution to the price discovery process of the spot market we modeled the relation between wti spot and future prices as a cointegration relation by using the kalman filter technique it was possible to obtain a time varying measure of the contribution of future markets to the price discovery mechanism the results show that in the case of wti the contribution of the futures market has been increasing especially between 2003 and 2008 and then again after the start of 2009 evidencing the growing importance of factors particular to the financial markets in determining oil prices in recent years during 2009 the spot prices adjusted to agents future expectations rather than to the current supply and demand conditions

hedgers funds and small speculators in the energy futures markets an analysis of the cftc s commitments of traders reports the commodity futures trading commission cftc s commitments of traders cot data are examined for crude oil unleaded gasoline heating oil and natural gas futures contracts the collection procedures for the cot data are first examined followed by granger causality tests to determine if relationships between trader positions and market prices exist a positive correlation between returns and positions held by noncommercial traders and a negative correlation between commercial positions and market returns are found furthermore positive returns result in an increase in noncommercial net positions in the following week whereas the net long positions held by commercial hedgers decline following price increases however traders net positions do not lead market returns in general

an information diffusion based model of oil futures price abstract inspired by the increasing evidence of financialization speculation in commodity pricing this paper constitutes a first attempt to build an information diffusion based asset pricing framework for the oil futures market with gradual information dissemination slowly decaying uncertainty about the asset s future fundamentals generates persistent conditional volatility and a drift in asset return volatility based proxies for information flows are proposed to examine empirically the asset pricing implications the results confirm a significant intertemporal relationship between return on the price of oil futures information diffusion and volatility components an important implication of our study is that the slow diffusion of information generates predictability in price dynamics a forecasting model is then constructed and tested in relation to our theory it is found that the lagged series of the pricing factors possess significant predicting power for returns

testing a causal model of corporate risk taking and performance the determinants of organizational risk taking and its impact on economic performance are critical issues in strategic management using a model that included risk performance performance expecta

oil shocks and aggregate macroeconomic behavior the role of monetary policy a recent paper by bernanke gertler and watson 1997 suggests that monetary policy could be used to eliminate any recessionary consequences of an oil price shock this paper challenges this conclusion on two grounds first we question whether the federal reserve actually has the power to implement such a policy for example we consider it unlikely that additional money creation would have succeeded in reducing the fed funds rate by 900 basis points relative to the values seen in 1974 second we point out that the size of the effect that bernanke gertler and watson attribute to oil shocks is substantially smaller than that reported by other researchers primarily due to their choice of a shorter lag length than that used by other researchers we offer evidence in favor of the longer lag length employed by previous research and show that under this specification even the aggressive federal reserve policies proposed would not have succeeded in averting a downturn

speculation and the 2008 oil bubble the dcot report analysis abstract this article analyzes the cftc s disaggregated commitments of traders dcot report to get more insights into the behavior of different traders during the 2008 oil bubble the analysis shows that 1 the money manager category perfectly played the oil bubble got in early and started selling shortly before the bubble peak 2 the producer merchant processor user category and the nonreportable category were covering their short positions into the peak of the bubble 3 the swap dealer category benefited while the price of oil was rising but incurred heavy losses as the price of oil collapsed 4 we find no indications of speculation by any group of traders via the positive feedback trading or rational destabilization and 5 we do however criticize the commercial hedgers for failing to arbitrage the soaring oil prices in 2008

price movements and price discovery in futures and cash markets r isk transfer and price discovery are two of the major contributions of futures markets to the organization of economic activity working 1962 evans 1978 p 80 and silber 1981 risk transfer refers to hedgers using futures contracts to shift price risk to others price discovery refers to the use of futures prices for pricing cash market transactions working 1948 wiese 1978 p 87 and lake 1978 p 161 the significance of both contributions depends upon a close relationship between the prices of futures contracts and cash commodities this paper examines the characteristics of price movements in cash or spot markets and futures markets for storable commodities section ii presents an analytical model of simultaneous price dynamics which suggests that over short intervals of time the correlation of price changes is a function of the elasticity of arbitrage between the physical commodity and its counterpart futures contract greater elasticity fosters more highly correlated price changes and thereby facilitates the risk transfer function the elasticity of supply of arbitrage services is constrained by among other things storage and transaction costs thus futures contracts will not in general provide perfect risk transfer facilities over short time horizons the essence of the price discovery function of futures markets hinges on whether new information is reflected first in changed futures prices or in changed cash prices hoffman 1932 pp 258259 the model in section ii provides a framework for analyzing whether one market is dominant in terms of information flows and price discovery in section iii we develop a model based on section ii which is appropriate for estimating the lead lag relationship between cash prices and futures prices section iv presents empirical estimates of the parameters of the model for seven different storable commodities wheat corn oats frozen orange juice concentrates copper gold and silver the cost of arbitrage between cash and futures differs across these commodities for this reason we are not surprised to find inter commodity differences in the correlation of short run price changes and in the substitutability of futures contracts for cash market positions with respect to the price discovery function of futures markets we find that while futures markets dominate cash markets cash prices do not merely echo futures prices there are reverse information flows from cash markets to futures markets as well

too much of a good thing this paper explores a seemingly paradoxical phenomenon associated with the use of expected utility theory in capital budgeting and risk sharing decisions under uncertainity as an investment prospect becomes better and better decision makers using classic decision analysis techniques may in fact prefer less and less of it we explore this phenomenon in the very real context of petroleum company drilling investment decisions and demonstrate that the phenomenon is pervasive when we examined the prospect inventory of a major oil company we found that an increase in the upside payoff would lead to a lower optimal working interest for the grand majority of its prospects we also explore the underlying factors leading to this phenomenon to develop both intuition and understanding these factors have to do with degree of risk aversion the more risk averse you are the less likely you are to increase your holdings of an improving prospect and managerial perspectives on risk once understood the results no longer seem surprising

macroeconomic forecasting and structural change the aim of this paper is to assess whether explicitly modeling structural change increases the accuracy of macroeconomic forecasts we produce real time out of sample forecasts for inflation the unemployment rate and the interest rate using a time varying coefficients var with stochastic volatility tv var for the us the model generates accurate predictions for the three variables in particular for inflation the tv var outperforms in terms of mean square forecast error all the competing models fixed coefficients vars time varying ars and the na ove random walk model these results are also shown to hold over the period commonly referred to as the great moderation

identifying changes in the spatial distribution of crime evidence from a referee experiment in the national football league between the 2009 2010 and 2010 2011 seasons the national football league nfl repositioned one of its officials in order to prevent injuries among officials this creates a quasi experiment for studying how a change in the extent of policing affects detection of offenses using play by play data from the 2009 2010 and 2010 2011 nfl season i estimate how the detection of offensive holding changes when the positioning of an official changes i find that there is approximately a 20 increase in the number of offensive holding penalties called after the nfl repositioned the official penalties called on defensive linemen fell as a result of the repositioning overall there was no change in the total number of penalties called using the estimated change in the probability of a penalty i estimate the probability of an official calling a penalty i infer that nfl officials detect approximately 60 of crimes committed on the field jel k4 z0 d0

a nonparametric garch model of crude oil price return volatility the use of parametric garch models to characterise crude oil price volatility is widely observed in the empirical literature in this paper we consider an alternative approach involving nonparametric method to model and forecast oil price return volatility focusing on two crude oil markets brent and west texas intermediate wti we show that the out of sample volatility forecast of the nonparametric garch model yields superior performance relative to an extensive class of parametric garch models these results are supported by the use of robust loss functions and the hansen s 2005 superior predictive ability test the improvement in forecasting accuracy of oil price return volatility based on the nonparametric garch model suggests that this method offers an attractive and viable alternative to the commonly used parametric garch models

financialisation oil and the great recession abstract this article addresses the role of world oil price hike of 2007 08 in serving to transform the financial and banking crisis into what is commonly referred to the great recession existing literature on the global crisis of 2007 09 tends to view it as a financial or banking phenomenon with analyses focusing mainly on state policies governance mechanisms and market dynamics in transforming the banking crisis of 2007 08 into the economic recession of 2008 12 13 although often attributing the global meltdown to wider phenomenon of financialisation rarely do existing perspectives delve into the role of the commodity sector in the global credit crunch in this paper we aim to fill this gap by inquiring into the role played by oil as a financial asset class in the political economy of the global crisis

does the s p500 index lead the crude oil dynamics a complexity based approach abstract taking the complex property of nonlinear feedback connectivity into consideration the goal of this paper is to apprehend the interdependences between the financial and energy sectors our contribution is both theoretical and methodological we conduct a multivariate analysis employing nonlinear tools namely the partial transfer entropy and the asymmetric mackey glass causality test in particular we build a system comprising the petroleum complex crude oil gasoline and heating oil the s p500 index and the 1 month futures spot spread for crude oil by adopting a rolling window approach we observe a persistent lead lag relationship between the s p500 index and the market participants expectations for crude oil from 2004 to 2009 depending on the bubble period in the stock market it appears that the resulting coupling becomes subject to the deterioration of global economic activity induced by large common shocks

oil prices exchange rates and emerging stock markets abstract while two different streams of literature exist investigating 1 the relationship between oil prices and emerging market stock prices and 2 the relationship between oil prices and exchange rates relatively little is known about the dynamic relationship between oil prices exchange rates and emerging market stock prices this paper proposes and estimates a structural vector autoregression model to investigate the dynamic relationship between these variables impulse responses are calculated in two ways standard and the recently developed projection based methods the model supports stylized facts in particular positive shocks to oil prices tend to depress emerging market stock prices and us dollar exchange rates in the short run the model also captures stylized facts regarding movements in oil prices a positive oil production shock lowers oil prices while a positive shock to real economic activity increases oil prices there is also evidence that increases in emerging market stock prices increase oil prices

how do dynamic responses of exchange rates to oil price shocks co move from a time varying perspective abstract with globalization and financialization exchange rates could be sensitive to oil price shocks due to differences of exchange rate policy oil dependence status and other factors the responses of exchange rates to oil price shocks could be either similar or heterogeneous therefore in this paper we integrate a hybrid research framework to investigate the co movement of responses to oil price shocks of four major exchange rate of currencies included in the special drawing rights basket from january 2000 to september 2018 from a time varying aspect and considering the asymmetric effect of the oil price shocks the main results are as follows compared with the general oil price shocks unexpected oil price shocks could have greater influence on currency markets over time with the asymmetric effect happening only when extreme market situations and unexpected oil price shocks appear simultaneously pairwise exchange rates tend to move in either a negatively or a positively similar way rather than in an unrelated manner in 50 of the sampled market time the co movement situation of exchange rates response could be captured by specific small numbers of co movement modes with the euro us dollar usd and great british pound usd tending to co move in more stable manner and having the potential to serve as an early warning of risk while other pairwise exchange rates are characterized by time varying features

on the link between forward energy prices a nonlinear panel cointegration approach abstract this paper investigates the relationship between forward prices of oil gas coal and electricity using a nonlinear panel cointegration framework to this end we consider a panel of 35 maturities and control for the economic and financial environment using equity futures prices estimating the cointegrating relationship we find that oil gas and coal forward prices are positively linked while the negative link between oil and electricity prices is consistent with a substitution effect between the two energy sources on the long run estimating panel smooth transition regression pstr models we show that the forward oil price adjustment process toward its equilibrium value is nonlinear and asymmetric putting forward the key role played by self sustaining dynamics and speculation phenomena

speculation and volatility spillover in the crude oil and agricultural commodity markets a bayesian analysis this paper assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets stochastic volatility models are applied to weekly crude oil corn and wheat futures prices from november 1998 to january 2009 model parameters are estimated using bayesian markov chain monte carlo methods speculation scalping and petroleum inventories are found to be important in explaining the volatility of crude oil prices several properties of crude oil price dynamics are established including mean reversion an asymmetry between returns and volatility volatility clustering and infrequent compound jumps we find evidence of volatility spillover among crude oil corn and wheat markets after the fall of 2006 this can be largely explained by tightened interdependence between crude oil and these commodity markets induced by ethanol production

using stockpile delegation to improve china s strategic oil policy a multi dimension stochastic dynamic programming approach abstract there has been much attention paid to oil security in china in recent years although china has begun to establish its own strategic petroleum reserve spr to prevent potential losses caused by oil supply interruptions the system aiming to ensure china s oil security is still incomplete this paper describes and provides evidence for the benefits of an auxiliary strategic oil policy choice which aims to strengthen china s oil supply security and offer a solution for strategic oil operations with different holding costs in this paper we develop a multi dimension stochastic dynamic programming model to analyze the oil stockpile delegation policy which is an intermediate policy between public and private oil stockpiles and is appropriate for the chinese immature private oil stockpile sector the model examines the effects of the oil stockpile delegation policy in the context of several distinct situations including normal world oil market conditions slight oil supply interruption and serious oil supply interruption operating strategies that respond to different oil supply situations for both the spr and the delegated oil stockpile were obtained different time horizons interruption times and holding costs of delegated oil stockpiles were examined the construction process of china s spr was also taken into account

risk propensity and firm performance a study of the petroleum exploration industry this paper explores the differences in observed risk propensity among petroleum firms and their impact on firm performance in this work we 1 develop a decision theoretic model which measures a firm s risk propensity in the form of an implied utility function 2 investigate changes in corporate risk propensity with respect to changes in firm size and 3 examine the relationships between firms risk propensities and alternative dimensions of economic performance including ex post risk and return measures we also develop a new risk propensity measure the risk tolerance ratio rtr which controls for firm size and allows firms to be differentiated in terms of relative risk propensity the motivation for this work is managerial concerns regarding appropriate risk taking behavior and the effect of risky choice on firm performance this methodology has importance business strategy implications in that we are able to make strong inferences about causal relationships between ex ante risk taking and performance our findings are compelling in that corporate risk propensity seems to matter and that decisions about corporate risk policy have a significant impact on the petroleum firm s economic performance

impacts of opec s political risk on the international crude oil prices an empirical analysis based on the svar models abstract the impacts of opec s political risk on the fluctuations of international crude oil prices have caused widespread concern and analyzing the impacts is of great significance to the investment decisions and risk aversion strategies in the crude oil markets therefore using the international country risk guide icrg index as a proxy for the countries political risk situation we empirically investigate the impacts of opec s political risk on the brent crude oil prices based on several structural vector autoregression svar models the main empirical results indicate that 1 the political risk of opec countries does have a significant and positive influence on brent crude oil prices in the sample period from january 1998 to september 2014 and the most significant positive influences appear in about one and a half year and last about a year 2 opec s integrated political risk contributes to 17 58 of the oil price fluctuations in the sample period which is only lesser than that of the oil demand shocks 34 64 3 compared with the political risk of opec countries in north africa and south america the political risk of opec countries in the middle east contributes most to the oil price fluctuations 4 among the eight components of the political risk in opec the internal conflicts contribute most to the oil price fluctuations in the sample period

what has driven oil prices since 2000 a structural change perspective abstract this paper characterizes weekly international oil price fundamentals since 2000 by analyzing the transformation of the market mechanism based on structural change perspective using endogenously determined break tests that allow for changes in both level and trend we divide the price fluctuations in the international oil market after 2000 into three stages relatively calm market period january 07 2000 to march 12 2004 the bubble accumulation period march 19 2004 to june 06 2008 and the global economic crisis period june 13 2008 to september 11 2009 the results show the existence of structural breaks refutes the utility of investigation of the full sample period as a whole and in different structural periods the main drivers of oil price changes and their way of influence and degree are significantly distinct then we demonstrate the evolving process of market mechanism since 2000 through establishing comparative models we also quantitatively measure the roles of speculation and episodic events in oil price fluctuations

impacts of exchange rate volatility and international oil price shock on china s regional economy a dynamic cge analysis abstract a multi regional dynamic computable general equilibrium model is constructed in this paper to explore the macroeconomic effects of international oil price shocks and rmb exchange rate changes on china the results show that 1 in terms of regional development differences the decrease in international oil prices and depreciation of rmb are both conducive to economic growth although the impact of rmb devaluation is more obvious increases in international oil prices will further widen the output gap between the rich and the poor regions whereas oil price decreases and rmb devaluation will narrow the regional development differences 2 in terms of employment the depreciation of the exchange rate and the decline in international oil prices will help increase the employment rate in most regions but oil price hikes will be most beneficial for improving oil industry employment in the northeast 3 the impact of oil price volatility is asymmetric compared with rising oil prices falling oil prices have significantly greater effects on gdp industrial output employment and other aspects furthermore the impacts of exchange rate fluctuations and oil price changes on the regional economy exhibit a time lag

equity market implied volatility and energy prices a double threshold garch approach abstract this study investigates the role of vix in determining the returns and return volatilities of oil heating oil gasoline and natural gas a double threshold garch 1 1 methodology is utilized where the vix index is used as the threshold regime change indicator daily data from january 4 1999 to december 31 2013 are used a sub period analysis covering only the financial crisis period of january 2 2007 to december 31 2009 is also performed this study provides evidence that the level of equity market volatility i e vix that triggers a regime shift is commodity specific the results also indicate that the threshold vix values are time varying furthermore natural gas prices appear to withstand considerably more volatility in the equity market than do the prices of other energy commodities this relationship is even more pronounced during the financial crisis period approximately 70 and 50 of the estimated coefficients display asymmetric sensitivities due to regime changes during the entire period and the crisis period respectively the findings have practical implications as the underlying volatility of an asset plays a significant role in determining its associated activity in the futures markets

the role of trader positions in spot and futures prices for wti abstract we extend the analysis of causal relations between trader positions and oil prices and the process of price discovery by estimating a cointegrating vector autoregression cvar model that expands the cash and carry relation between spot and futures prices to quantify long and short run relations among oil prices trader positions interest rates and oil inventories results indicate that oil inventories and trader positions are needed to generate cointegration between spot and futures prices the presence of trader positions and oil inventories suggest that both play a role in price discovery furthermore the cointegrating relation for price loads into the equation for both oil prices and trader positions this suggests a bi directional simultaneous adjustment process between oil prices and trader positions this expands the unidirectional causal relation from oil prices to trader positions that is generated by previous studies additional results suggest that price discovery occurs in the market for heavily traded near month futures contracts but discovery for thin far month futures markets occurs in the spot market together these results suggest mechanisms by which speculation could affect oil prices but the results presented here are moot regarding their effects

quantifying the speculative component in the real price of oil the role of global oil inventories abstract one of the central questions of policy interest in recent years has been how many dollars of the inflation adjusted price of oil must be attributed to speculative demand for oil stocks at each point in time we develop statistical tools that allow us to address this question and we use these tools to explore how the use of two alternative proxies for global crude oil inventories affects the empirical evidence for speculation notwithstanding some differences overall these inventory proxies yield similar results while there is evidence of speculative demand raising the price in mid 2008 by between 5 and 14 dollars depending on the inventory specification there is no evidence of speculative demand pressures between early 2003 and early 2008 as a result current policy efforts aimed at tightening the regulation of oil derivatives markets cannot be expected to lower the real price of oil in the physical market we also provide evidence that the libyan crisis in 2011 shifted expectations in oil markets resulting in a price increase of between 3 and 13 dollars depending on the inventory specification with regard to tensions with iran in 2012 the implied price premium ranges from 0 to 9 dollars

oil exploration and perceptions of scarcity the fallacy of early success abstract it has been suggested that oil exploration may lead to false perceptions of decreasing scarcity we perform a simulation of the exploration process using bayesian updating the approach enables us to isolate the information effect on the success rate and also to quantify the subjective expectation of the total resource size the area under exploration consists of a number of regions which may differ in their oil content exploration is performed with the goal to maximize the expected success rate the resulting information about the distribution of oil and the total resource size is assumed public knowledge a number of scenarios with variations in the dimensions of the area under exploration the oil distribution and initial beliefs are considered the results indicate that the information effect on the success rate is significant but brief it might have a considerable impact on price but is an unlikely mechanism behind a long term declining price trend however the information effect on expectations is gradual and persistent since exploration is performed in regions where the expected success rate is the highest the historical success rate will not be representative of the area as a whole an explorer will tend to overestimate the total resource size thereby suggesting an alternative mechanism for false perceptions of decreasing scarcity a mechanism that could be called the fallacy of early success

oil prices and the impact of the financial crisis of 2007 2009 abstract oil prices increased dramatically during 2004 2006 industry experts initially attributed these price increases to fundamental factors such as the rise in global demand but also because of disruptions in the supply of oil the price increases however were so substantial that additional factors are needed to explain such dramatic changes we propose that the decline in the value of the u s dollar measured both by the appreciation of the euro and of gold prices played an important role as oil suppliers demanded compensation for the declining value of the dollar using a markov switching regime methodology we find evidence that this hypothesis is true prior to the financial crisis but its validity does not hold after the crisis when oil prices crashed and the dollar rallied

the relationship between oil prices and exchange rates revisiting theory and evidence abstract this paper reviews existing theoretical and empirical research on the relationship between oil prices and exchange rates we start with theoretical transmission channels which point to bi directional causality empirical research is classified and shows that the evidence varies substantially depending on sample country choice and empirical method yet there are some common patterns i strong links between exchange rates and oil prices are frequently observed over the long run and ii either exchange rates or oil prices are a potentially useful predictor of the other variable in the short run but the effects are strongly time varying we also identify some important avenues for future research

financial liquidity geopolitics and oil prices abstract this paper aims simultaneously to study the global dynamic relationship of oil prices financial liquidity and geopolitical risk on the one hand and the economic performance of oil exports dependent economies on the other global and country specific dynamics are studied together in a global vector autoregression gvar model that allows different lag structures for different variables in different countries global impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely despite the likely continuation of high global financial liquidity and heightened geopolitical risk which had driven earlier episodes of very high oil prices with oil remaining at modest to low prices by recent historical standards we study the prospects for economic growth in oil export dependent economies through dramatic increases in domestic investment as planned under visions 2030 of some arab countries and conclude that unfortunately success is unlikely

oil prices speculation and fundamentals interpreting causal relations among spot and futures prices abstract a consensus that the world oil market is unified begs the question where do innovations in oil prices enter the market here we investigate where changes in the price of crude oil originate and how they spread by examining causal relationships among prices for crude oils from north america europe africa and the middle east on both spot and futures markets results indicate that innovations first appear in spot prices for dubai fateh and spread to other spot and futures prices while other innovations first appear in the far month contract for west texas intermediate and spread to other exchanges and contracts links between spot and futures markets are relatively weak and this may have allowed the long run relationship between spot and future prices to change after september 2004 together these results suggest that market fundamentals initiated a long term increase in oil prices that was exacerbated by speculators who recognized an increase in the probability that oil prices would rise over time

racial discrimination among nba referees the nba provides an intriguing place to assess discrimination referees and players are involved in repeated interactions in a high pressure setting with referees making split second decisions that might allow implicit racial biases to become evident we find that more personal fouls are awarded against players when they are officiated by an opposite race officiating crew than when they are officiated by an own race refereeing crew these biases are sufficiently large so that they affect the outcome of an appreciable number of games our results do not distinguish whether the bias stems from the actions of white or black referees

strategic risk an ordinal approach strategic management researchers have shown increasing awareness of the importance of the concept of risk at the strategic level in recognition of this interest this research adopts a commonly used conceptualization of risk and shows how this conceptualization leads to a new measure of risk based upon the chance of loss of relative position within a set of firms this framework is shown to be particularly appropriate for strategy research information contained in probability distributions describing the relative positions of sets of firms over time is shown to be partitionable on the basis of gain or loss in position as well as on firm identity leading to the derivation of a new measure of strategic risk for an individual firm this development also provides a hierarchical quantification of risk at the levels of the industry group and individual firm the ordinal risk measure is applied to both hypothetical data for illustration and to data on the u s airline industry

which determinant is the most informative in forecasting crude oil market volatility fundamental speculation or uncertainty abstract this paper aims to identify the most informative determinant in forecasting crude oil market volatility we use a new garch class model based on mixed data sampling regression and the dynamic model averaging combination method to examine the predicting power of the determinants we integrate both the global economic policy uncertainty gepu indices and several national economic policy uncertainty epu indices with traditional determinants such as global oil demand supply and speculation our analysis suggests that the epu indices comprehensively integrate the information contained in other determinants specifically gepu indices and the u s s epu index have superior predictive powers for west texas intermediate spot oil volatility this finding highlights the importance of epu indices implying that they are key factors to consider when determining crude oil market volatility

and a hockey game broke out crime and punishment in the nhl i introduction the economic theory of crime predicts that an increase in policing resources will lead to a decrease in the crime rate empirically determining the magnitude of this effect has proved difficult however because of an endogeneity problem although variations in the allocation of policing resources are expected to affect crime rates the reverse may also hold true cornwell and trumbull 1994 levitt 1997 the endogeneity problem can be avoided to a large degree by studying situations in which changes in the allocation of policing resources occur independent from crime rates in an innovative and influential study mccormick and tollison 1984 apply the economic theory of crime to rules infractions in a sports contest they analyze a policy change in the atlantic coast conference acc basketball tournaments in 1979 the acc increased the number of referees in the tournament games mccormick and tollison analyze the effect of increasing the number of referees on the number of fouls called their approach is unlikely to suffer from a severe endogeneity bias because the policy change occurred only once and furthermore occurred between tournament seasons on the other hand insofar as rules infractions in sports contests are analogous to criminal activity mccormick and tollison measure arrests rather than crimes the effect of an increase in policing resources on arrests cannot be resolved by theory for a given crime rate increases in police budgets and forces enable greater monitoring of criminal activity and consequently lead to more arrests the crime rate however is itself a function of the level of policing resources rational criminals realize that greater monitoring increases the probability that their actions will result in arrest and may be deterred from committing crimes this decreases the crime rate the net effect on the total number of arrests is ambiguous because it depends on whether the monitoring or deterrent effect dominates mccormick and tollison find that increasing the number of referees leads to a reduction in the number of fouls called this suggests that the deterrent effect dominates the monitoring effect shortly after their study was published it was recognized in surveys of both sports economics by cairns et al 1985 and crime by cameron 1988 we examine a natural experiment in sports to further understand the monitoring and deterrent effects in the 1999 2000 season the national hockey league nhl games had either one or two referees 1 we find that games with two referees have more penalties called suggesting that the monitoring effect dominates the deterrent effect we then use an instrumental variables technique to determine the effect of the number of referees on the number of infractions actually committed by players in the game we find that the number of referees does not significantly affect the number of infractions committed this is direct evidence that the deterrent effect is inconsequential in this context our results are unlikely to suffer from an endogeneity bias because the variation in the number of referees is independent of the rate of infractions in the individual games ii the nhl experiment enforcement of the rules in an nhl game is done by referees and linesmen the nhl has historically utilized one referee and two linesmen the linesmen are responsible for identifying infractions that result in a stoppage of play such as icing sending the puck from one end of the rink to the other and off sides entering the offensive zone before the puck the referee is responsible for identifying more severe infractions such as slashing swinging a stick at an opponent hooking using a stick to impede the progress of an opponent and fighting fisticuffs when one of these infractions is identified by the referee a penalty is called and the offending player is removed from the ice for a period of time depending on the severity of the penalty

oil price shocks policy uncertainty and stock returns of oil and gas corporations abstract this paper investigates the effects of oil price shocks and economic policy uncertainty on the stock returns of oil and gas companies we find that an oil demand side shock has a positive effect on the return of oil and gas companies on average whereas shocks to policy uncertainty have a negative effect on the return historical decomposition shows that the effects of oil shocks on the stock return are amplified by the endogenous policy uncertainty responses these results are consistent with those for major integrated oil and gas companies the return responses however show heterogeneous effects of structural shocks on upstream midstream and downstream oil and gas companies suggesting that a well diversified portfolio is obtainable

mergers and acquisitions between risk averse parties abstract this paper evaluates mergers and acquisitions ma however it may yield a higher price for the consumer moreover we show that a decentralized supply chain can be more beneficial for the parties than a centralized supply chain formed by acquisition

volatility spillovers between oil prices and stock sector returns implications for portfolio management abstract in this article we take a recent generalized var garch approach to examine the extent of volatility transmission between oil and stock markets in europe and the united states at the sector level the empirical model is advantageous in that it typically allows simultaneous shock transmission in the conditional returns and volatilities insofar as volatility transmission across oil and stock sector markets is a crucial element for portfolio designs and risk management we also analyze the optimal weights and hedge ratios for oil stock portfolio holdings with respect to the results our findings point to the existence of significant volatility spillover between oil and sector stock returns however the spillover is usually unidirectional from oil markets to stock markets in europe but bidirectional in the united states our back testing procedures finally suggest that taking the cross market volatility spillovers estimated from the var garch models often leads to diversification benefits and hedging effectiveness better than those of commonly used multivariate volatility models such as the ccc garch of bollerslev 1990 the diagonal bekk garch of engle and kroner 1995 and the dcc garch of engle 2002

modeling returns and volatility transmission between oil price and us nigeria exchange rate article i nfo this paper models returns and volatility transmission between oil price op and us nigeria exchange rate exr consequently it provides five main innovations i it analyzes op and exr using the recently devel oped test by narayan and popp 2010 np which allows for two structural breaks in the data series ii it employs the narayan and liu 2011 nl garch unit root test to evaluate robustness of np test iii it con siders the newly developed var garch model to capture the spillover effects in the returns and volatility of op and exr iv it modifies the var garch model to account for structural breaks obtained from the np procedure and v using the results obtained from the var garch model it examines the optimal weights of holding oil and foreign exchange fx assets and also computes the hedging ratios in the presence of oil risk based on the np and nl tests it finds robust structural breaks that coincide with the period of global fi nancial crisis as well as period of fx crisis in nigeria also it establishes a bidirectional returns and spillover transmission between oil and fx markets finally its findings reveal evidence of hedging effectiveness involving oil and fx markets in nigeria and thus the inclusion of oil into a diversified portfolio of fx will improve its risk adjusted return performance

the extreme value in crude oil and us dollar markets abstract this study constructs a flexible range based volatility model by considering extreme value information to explore the volatility and dependence structures between the oil price and the us dollar exchange rate an asset allocation strategy is implemented to evaluate the economic value and confirm the efficiency of this model the empirical results indicate that the use of extreme value information can not only enhance the explanatory power of volatility structures but also sort out the asymmetric volatility effect in the oil market besides investors can obtain extra benefits of between 72 and 713 annualized basis points by incorporating extreme value information into their asset allocation strategies less risk averse investors can generate higher benefits the empirical results have potentially important implications for asset allocation and risk management

assessment of the relationship between oil prices and us oil stocks abstract this paper qualitatively and quantitatively analyzes the relationship between us monthly ending oil stocks position with that of west texas intermediate wti oil prices from february 1995 to july 2004 the paper concludes if other things are held constant wti is inversely related to the petroleum products ppp combined petroleum products and crude oil cppp crude oil alone crude total oil stocks including petroleum products crude oil and strategic petroleum reserves spr total total gasoline tgo total distillate tdo it could not establish a statistically significant and negative relationship with spr when run alone one percent increase decrease in cppp ppp crude total tgo and tdo leads to decrease increase in wti respectively by 0 70 0 43 0 37 0 97 0 26 and 0 21 percent oil prices are largely influenced by total crude and crude and ppp inventories levels while modestly with variations in gasoline and distillate stocks levels despite a healthy increase of over 22 percent in spr from january 2001 to april 2004 it did not result in easing of oil prices primarily because spr are meant for security of supply concern and are only released under extreme conditions by the president of united states they are neither meant for the purposes of balancing supply demand gap nor for the stability of oil prices the aggressive spr buildup in recent years is related to international terrorism geopolitical situation in the middle east particularly in iraq that encourages us government to enhance its spr to meet any short term eventuality the analyst must keep a close eye on cppp and the total oil stocks variation to forecast wti in the short run whilst gasoline and distillate influence oil prices modestly in the short run spr on the other hand are expected to play a pivotal role in balancing oil prices and in providing a critical resource for the economy in case of any major shortfall in the long run

on the dynamic effects of oil price shocks a study using industry level data abstract this paper analyzes the effects of oil price shocks on demand and supply in various industries the impulse responses of identified var models indicate that for industries that have a large cost share of oil such as petroleum refinery and industrial chemicals oil price shocks mainly reduce supply in contrast for many other industries with the automobile industry being a particularly important example oil price shocks mainly reduce demand the paper suggests that oil price shocks influence economic activities beyond that explained by direct input cost effects possibly by delaying purchasing decisions of durable goods

smooth transition regime shifts and oil price dynamics abstract the interaction between rational hedgers and informed oil traders is parameterized and tested empirically with the help of a complex non linear smooth transition regime shift ccc garch procedure in spite of their gyrations futures price changes are usually self correcting well informed producers and consumers will ensure that crude oil prices and thus the prices of the corresponding futures contracts fluctuate within a long run equilibrium range determined by market fundamentals during a steep price upswing however shifts in positions in the futures markets by well informed optimizing agents that usually dampen price changes result in destabilizing positive feedback trading futures price changes that can be classified as speculative are due to destabilizing hedgers reactions to movements in the variability of the return of their covered cash position the paper provides in this way an innovative interpretation of the 2008 oil price bubble

modeling oil price us stock nexus a varma bekk agarch approach abstract this study adds to the existing literature on oil price us stock nexus in three ways first it employs the varma agarch model developed by mcaleer et al 2009 within the context of bekk framework using west texas intermediate wti and brent as proxies for oil market and s p stocks as a proxy for us stock market secondly it modifies the model to include endogenously determined structural break using the general structure for analyzing breaks with unit roots in perron 2006 third it uses the adopted model to compute optimal portfolio weight and hedge ratios between oil price and us stocks using different sample data based on the break date on average our empirical evidence suggests a significant positive return spillover from us stock market to oil market and bi directional shock spillovers between the two markets in addition there is significant own asymmetric shock effect in both markets while volatility spillover from oil market to stock market became pronounced after the break which coincides with the period of global economic slowdown similarly the results of portfolio management differ across the sample data more importantly we find that ignoring structural break when it exists may exaggerate hedging effectiveness

u s stock returns and oil prices the tale from daily data and the 2008 2009 financial crisis abstract using daily data from january 1999 to december 2011 we examine u s stock returns s p 500 dow jones nasdaq and russell 2000 based on a wide range of information including equity vix volatility inflation expectations interest rates gold prices and the usd euro exchange rate the focus is on oil price returns which have been previously found to exert mostly negative effects on u s stock returns identifying the crisis of 2008 2009 as a significant period of economic contraction and subsequent recovery we check the stability of the stock oil relationship by garch and mgarch dcc models prior to the financial crisis stock returns are slightly negatively affected by oil prices and by the usd euro for the subsample of mid 2009 onwards however stock returns are positively affected by oil prices and a weaker usd euro as with inflation expectations we interpret these findings as u s stocks responding positively to expectations of recovery worldwide our proposed explanation is due to the changing correlation between stock markets and oil either by standard garch models or by mgarch dcc models allowing the implied correlation to vary over time

the effect of risk sensitivity on a supply chain of mobile applications under a consignment contract with revenue sharing and quality investment abstract the paper provides a thorough investigation of the revenue sharing contract format typically used in the mobile applications apps industry the platform provider sets the level of revenue sharing and the app developer determines the investment in quality and the selling price of the app the demand for an app which depends on both price and quality investment is assumed to be uncertain so the risk attitude of the supply chain members has to be considered specifically we focus on how risk sensitive behavior of supply chain members affects chain performance the members equilibrium strategies are analyzed under different attitudes toward risk averse neutral and seeking we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to identify these strategies for any utility function of the developer we find that i the revenue sharing contract circumvents the double marginalization effect associated with vertical competition and therefore yields the best selling price for the customer ii a decentralized supply chain sometimes performs better than a centralized one and iii a risk seeking developer may obtain a higher expected profit than does a risk neutral developer

dynamic spillovers of oil price shocks and economic policy uncertainty this study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil exporting and net oil importing countries over the period 1997 01 2013 06 to achieve that an extension of the diebold and yilmaz 2009 2012 dynamic spillover index based on structural decomposition is employed the results reveal that economic policy uncertainty oil price shocks responds negatively to aggregate demand oil price shocks economic policy uncertainty shocks furthermore during the great recession of 2007 2009 total spillovers increase considerably reaching unprecedented heights moreover in net terms economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009 while in the post 2009 period there is a significant role for supply side and oil specific demand shocks as net transmitters of spillover effects these results are important for policy makers as well as investors interested in the oil market

valuing risky projects option pricing theory and decision analysis in the academic literature and professional practice there are a number of alternative and apparently competing methods for valuing risky projects in this paper we compare and contrast three different approaches risk adjusted discount rate analysis option pricing analysis and decision analysis focusing on the last two we show that in contrast to some of the claims made in the real options literature when both option pricing and decision analysis methods are correctly applied they must give consistent results we also explore ways in which option pricing and decision analysis methods can be profitably integrated in particular we show how option pricing techniques can be used to simplify decision analysis when some risks can be hedged by trading and conversely how decision analysis techniques can be used to extend option pricing techniques to problems with incomplete securities markets

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

oil and us dollar exchange rate dependence a detrended cross correlation approach abstract this paper examines the relationship between oil prices and the us dollar exchange rate using detrended cross correlation analysis for a wide set of currencies in the periods before and since the onset of the recent global financial crisis we characterized the oil price exchange rate relationship at different time scales and documented two main findings first the cross correlation analysis indicated that oil price exchange rate correlations were negative and low having in general lower values for longer time scales second negative dependence between oil and the us dollar increased after the onset of the global financial crisis for all time scales thereby providing evidence of both contagion and interdependence this empirical evidence has important implications for monetary and fiscal policies asset management and risk assessment

forecasting crude oil market volatility further evidence using garch class models abstract this paper extends the work of kang et al 2009 we use a greater number of linear and nonlinear generalized autoregressive conditional heteroskedasticity garch class models to capture the volatility features of two crude oil markets brent and west texas intermediate wti the one five and twenty day out of sample volatility forecasts of the garch class models are evaluated using the superior predictive ability test and with more loss functions unlike kang et al 2009 we find that no model can outperform all of the other models for either the brent or the wti market across different loss functions however in general the nonlinear garch class models which are capable of capturing long memory and or asymmetric volatility exhibit greater forecasting accuracy than the linear ones especially in volatility forecasting over longer time horizons such as five or twenty days

risk appetite and oil prices abstract we demonstrate that oil prices and their volatility are no longer determined solely by real economic shocks to supply of and demand for oil but are also driven by shocks originating in the economic uncertainty and risk appetite of investors that prevail in the equity market the contribution of the latter factor has become particularly remarkable since the mid 2000s to establish these results we dismantle the squared vix index determined in the s p 500 options market into the conditional variance in stock returns to proxy for economic uncertainty and the equity variance risk premium to proxy for risk appetite using threshold garch structural vector auto regression and causality models we provide evidence about the link between risk appetite oil price returns and volatility furthermore investors appetite for risk drives changes in the ovx which measures perceptions about future oil volatility but not vice versa our results provide a better understanding of the relationship between oil the vix and its two proposed components in particular we show that changes in the risk appetite of investors are an important determinant not only for the price of equities but also for that of the most important energy resource oil

feedback traders and stock return autocorrelations evidence from a century of daily data the authors investigate whether the degree of autocorrelation shown by high frequency stock returns changes with volatility this may result from nontrading effects feedback trading strategies or variable risk aversion the authors results indicate that when volatility is low daily and hourly stock returns exhibit positive autocorrelation but when it is high returns exhibit negative serial correlation they also find an important asymmetry negative serial correlation is more likely after price declines this is consistent with price declines being more likely to induce positive feedback trading the authors also find no significant relation between margin requirements and the autocorrelation of returns copyright 1992 by royal economic society

bidirectional causality in oil and gas markets abstract do events in the natural gas market cause repercussions in the crude oil market this paper studies linkages between the two markets using high frequency intraday oil and gas futures prices by analyzing the effect of weekly oil and gas inventory announcements on price volatility we show a bidirectional causal relationship both inventory gluts and shortages have a cross commodity effect on price volatility not only for the next month nearby futures contract but also for the following six months contracts

stochastic analysis of a shale gas investment strategy for coping with production uncertainties abstract the soaring demand for natural gas and deteriorating environmental conditions in recent years have together created a significant incentive for china to develop shale gas exploration in this endeavor production capacity is a major uncertainty that substantially affects the net investment return we propose a markov decision process model to explore and determine the desirable investment strategy under such uncertainty our model has the advantage of being able to handle dynamic stochastic market states and it considers not only the value of the project itself net cash flow but also the social welfare environmental cost and financial subsidy our objective is to maximize the long run expected return of investment the methodology was applied to determine the investment strategy for a case study in china we found that the project is feasible only when the production capacity is larger than 8 55 billion cubic meters additional shale gas supply may generate higher sales revenue however the benefits may be neutralized by the decrease in price when domestic demand is inelastic to price we also found that financial subsidy is an effective incentive for shale gas investment because it significantly increases the expected return of investment

asymmetry and uncertainty in capital formation an application to oil investment theories of irreversible investment suggest a negative relation between investment and uncertainty and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital we propose an econometric modelling approach to estimate and test the key predictions of modern investment theory including asymmetric dynamics and various uncertainty indicators our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment

oil price dynamics and speculation a multivariate financial approach abstract this paper assesses empirically whether speculation affects oil price dynamics the growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values we investigate this hypothesis using a modified capm following shiller 1984 and sentana and wadhwani 1992 first a univariate garch 1 1 m is estimated assuming the risk premium to be a function of the conditional oil price volatility the single factor model however is outperformed by the multifactor icapm merton 1973 which takes into account a larger investment opportunity set analysis is then carried out using a trivariate ccc garch m model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior we find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time varying first and second order conditional moment interactions affects both the capm and feedback trading components of the model despite the difficulties we identify a significant role played by speculation in the oil market which is consistent with the observed large daily upward and downward shifts in prices a clear evidence that it is not a fundamental driven market thus from a policy point of view given the impact of volatile oil prices on global inflation and growth actions that monitor speculative activities on commodity markets more effectively are to be welcomed

asymmetric information and the new theory of the firm financial constraints and risk behavior this paper summarizes recent developments in the theory of the firm that have arisen in examining the implications of imperfect information it shows that a wide range of these models have similar implications for the likely reaction of firms to external environmental and policy changes two significant implications are 1 that firms behave as if they are risk averse individuals maximizing a utility function of terminal wealth profitability even when the risks involved are unsystematic and 2 in many circumstances because this utility function is likely to be characterized by decreasing absolute risk aversion firms are likely to respond significantly and positively to changes in cash flow and profitability together these two phenomena are able to account for a wide range of firm behaviors that have been empirically observed both formally and informally and that are difficult to explain in terms of the traditional theory of the firm furthermore the responses of such firms to policy interventions are likely to differ significantly from those of neoclassical firms this abstract was borrowed from another version of this item