Structural breaks, dynamic correlations, asymmetric volatility transmission, and hedging strategies for petroleum prices and USD exchange rate

Mensi, Walid,Hammoudeh, Shawkat,Yoon, Seong-Min Elsevier 2015 ENERGY ECONOMICS Vol.48 No.-

<P><B>Abstract</B></P> <P>This paper investigates the influence of structural changes on the asymmetry of volatility spillovers, asset allocation and portfolio diversification between the USD/euro exchange market and each of six major spot petroleum markets including WTI, Europe Brent, kerosene, gasoline and propane. Using the bivariate DCC–EGARCH model with and without structural change dummies, the results provide evidence of significant asymmetric volatility spillovers between the U.S. dollar exchange rate and the petroleum markets. Moreover, the model with the structural breaks reduces the degree of volatility persistence and leads to more appropriate hedging and asset allocation strategies for all pairs considered. Thus, the findings have important implications for financial risk management.</P> <P><B>Highlights</B></P> <P> <UL> <LI> We investigate volatility spillovers between the USD and five petroleum markets. </LI> <LI> Bivariate EGARCH model with and without structural breaks is used. </LI> <LI> Significant asymmetric volatility spillover effects are found. </LI> <LI> Persistence of volatility declines when structural breaks are controlled. </LI> <LI> The evidence attests to importance of cross-market hedging and asset allocation. </LI> </UL> </P>

How do OPEC news and structural breaks impact returns and volatility in crude oil markets? Further evidence from a long memory process

Mensi, W.,Hammoudeh, S.,Yoon, S.M. IPC Science and Technology Press ; Elsevier Scienc 2014 ENERGY ECONOMICS Vol.42 No.-

Since its formation, OPEC through its conference decisions has been a major player in the world oil markets. The purpose of this paper is to examine the impacts of OPEC's different news announcements on the conditional expectations and volatility of crude oil markets in the presence of long memory and structural changes. To do so, we first discern OPEC's oil production behavior in response to its ''cut'', ''maintain'', and ''increase'' decisions. Then by applying the ARMA-GARCH class models to the two global benchmarks WTI and Brent over the period May 1987 through December 2012, we find strong evidence of long memory. The empirical evidence also shows that OPEC's announcements especially the ''cut'' and the ''maintain'' decisions have a significant effect on both returns and volatility of the crude oil markets, particularly that of the WTI. Moreover, we explore the possibility of structural breaks in the crude oil prices and detect five (six) breakpoints for the WTI (Brent) oil markets. The presence of structural breaks reduces the persistence of volatility. Accounting for OPEC's scheduled news announcements in the presence of structural changes reduces the degree of volatility persistence and enhances the understanding of this volatility in the oil markets. These results have several implications for policy makers, oil traders and other participants in the crude oil markets.

Impact of macroeconomic factors and country risk ratings on GCC stock markets: evidence from a dynamic panel threshold model with regime switching

Mensi, Walid,Hammoudeh, Shawkat,Yoon, Seong-Min,Balcilar, Mehmet Taylor Francis 2017 Applied Economics Vol.49 No.13

Global financial crisis and spillover effects among the U.S. and BRICS stock markets

Mensi, W.,Hammoudeh, S.,Nguyen, D.K.,Kang, S.H. JAI Press ; Elsevier Science Ltd 2016 International review of economics and finance Vol.42 No.-

This article examines the spillover effect between the U.S. market and five of the most important emerging stock markets namely those of the BRICS (Brazil, Russia, India, China and South Africa), and draws implications for portfolio risk modeling and forecasting. It gives consideration to periods before and after the recent global financial crisis (GFC). To this end, the bivariate DCC-FIAPARCH model, the modified ICSS algorithm and the Value-at-Risk (VaR) are employed to capture volatility spillovers, detect potential structural breaks and assess the portfolio market risks. Using the U.S. and the BRICS daily spot market indices for the period from September 1997 to October 2013, our empirical results show strong evidence of asymmetry and long memory in the conditional volatility and significant dynamic correlations between the U.S. and the BRICS stock markets. Moreover, we find several sudden changes in these markets with a common break date centered on September 15, 2008 which corresponds to the Lehman Brothers collapse. The Brazil, India, China and South Africa markets are strongly affected by the GFC, supporting the hypothesis of recoupling (with increased linkages). In contrast, the hypothesis of decoupling is supported for the Russian stock markets only. Finally, the skewed Student-t FIAPARCH models outperform and provide more accurate in-sample estimates and out-of-sample forecasts of VaR than the normal and Student-t FIAPARCH models in almost all cases. These results provide helpful information to financial risk managers, regulators and portfolio investors to determine the diversification benefits among these markets.

Analysing dynamic linkages and hedging strategies between Islamic and conventional sector equity indexes

Mensi, Walid,Hammoudeh, Shawkat,Sensoy, Ahmet,Yoon, Seong-Min Taylor Francis 2017 Applied Economics Vol.49 No.25

Dynamic spillovers among major energy and cereal commodity prices

Mensi, W.,Hammoudeh, S.,Nguyen, D.K.,Yoon, S.M. IPC Science and Technology Press ; Elsevier Scienc 2014 ENERGY ECONOMICS Vol.43 No.-

Over the past decade, the sharp increases in the prices of oil and agricultural commodities have raised serious concerns about the heightened volatility of these markets and the possible negative interactions between them. This article deals with the dynamic return and volatility spillovers across international energy and cereal commodity markets. It also examines the impacts of three types of OPEC news announcements on the volatility spillovers and persistence in these markets. For this purpose, we make use of the VAR-BEKK-GARCH and VAR-DCC-GARCH models for the daily spot prices of eight major commodities including WTI oil, Europe Brent oil, gasoline, heating oil, barley, corn, sorghum, and wheat. Our results provide evidence of significant linkages between these energy and cereal markets. Moreover, the OPEC news announcements are found to exert influence on the oil markets as well as on the oil-cereal relationships. Finally, we show that the persistence of volatility decreases (increases) for the crude oil and heating oil (gasoline) returns after accounting for the OPEC announcements in these multivariate GARCH models. However, the results are more mixed for the cereal markets. Overall, our results can be used to improve the risk-adjusted performance by having more diversified portfolios and also serve to hedge the oil risk more effectively.

Effects of U.S. Macroeconomic Shocks on International Commodity Prices

Won Joong Kim,Shawkat Hammoudeh,Kyongwook Choi 한국경제연구학회 2014 Korea and the World Economy Vol.15 No.1

Using a structural VAR with block exogeneity, diagonality and identifying restrictions, the paper first analyzes the macroeconomic linkages among the oil price, U.S. output, interest rate, money supply, price level, and exchange rate, and second with international non-fuel commodity group prices. By assuming the block exogeneity of U.S. macroeconomic variables with respect to the international non-fuel commodity prices, the paper discusses how exogenous macroeconomic shocks affect those commodity prices. It finally explores which oil/macroeconomic shocks are important in explaining the variations in the commodity prices. The results show that the sources of major fluctuations in the international commodity differ greatly by commodity. Some commodity prices seem to be affected greatly by financial factor such as ‘seafood’, ‘industrial metal’, and ‘gold’. Moreover, for some commodities, price volatilities are more affected by financial factor than by real factor. Those commodities include ‘vegetable oils and protein meals’, ‘meat’, ‘seafood’, and ‘industrial metals’. Financial factor is also important source of fluctuations in the oil prices. Oil price shocks have instantaneous effects on the volatilities of interest rates, money supply, and price level. Oil shocks also have significant effects on interest rate, money supply, and exchange rate two years after the shock.

Effects of U.S. Macroeconomic Shocks on International Commodity Prices: Emphasis on Price and Exchange Rate Pass-through Effects

( Won Joong Kim ),( Shawkat Hammoudeh ),( Kyongwook Choi ) 한국환경경제학회·한국자원경제학회(구 한국환경경제학회) 2012 한국환경경제학회 학술발표논문집 Vol.2012 No.경제학 공동

Using a structural VAR with block exogeneity, diagonality and identifying restrictions, this paper analyzes: first, the macroeconomic linkages among the oil price, U.S. output, interest rate, money supply, general price level and exchange rate; and second, the relationships of the macroeconomic variables with the price indices of ten international nonfuel commodity groups. By assuming the block exogeneity of U.S. macroeconomic variables with respect to the international nonfuel commodity prices, the paper discusses how exogenous oil/macroeconomic shocks affect the international commodity prices. It finally explores which oil/macroeconomic shocks are important in explaining the variations in international commodity prices. The results show that the sources of major fluctuations in the international commodities differ greatly by commodity. Soft and hard commodity prices such as those of ‘seafood’, ‘industrial metals’, and ‘gold’ seem to be strongly affected by the financial factor. Moreover, for some commodities, price fluctuations are more affected by the financial factor than by the real factor, supporting the view of “financialization” of commodities. Those commodities include ‘vegetable oils and protein meals’, ‘meat’, ‘seafood’, and ‘industrial metals’. The financial factor is also an important source of fluctuations in the oil prices. Oil price shocks have effects on the volatilities of interest rates, money supply, and general price level instantly, as well as on the exchange rate instead of the general price two years after the shock. Over the whole forecasting horizon, the degree of exchange rate pass-through is low on the general price level but is positive and high on oil and nonfuel international commodity prices.

Policy specification and verification for blockchain and smart contracts in 5G networks

Devrim Unal,Mohammad Hammoudeh,Mehmet Sabir Kiraz 한국통신학회 2020 ICT Express Vol.6 No.1

Blockchain offers unprecedented opportunities for innovation in financial transactions. A whole new world of opportunities for banking, lending, insurance, money transfer, investments, and stock markets awaits. However, the potential for wide-scale adoption of blockchain is hindered with cybersecurity and privacy issues. We provide an overview of the risks and security requirements and give an outlook for future research that could be helpful in solving some of the challenges. We also present an approach for policy specification and verification of financial transactions based on smart contracts.

Common and Country-Specific Uncertainty Fluctuations in Major Oil-Producing Countries: A Comparative Study

Refk Selmi,Jamal Bouoiyour,Shawkat Hammoudeh 세종대학교 경제통합연구소 2020 Journal of Economic Integration Vol.35 No.4

In the wake of recent political developments worldwide, future oil supply prospects have become doubtful and uncertainty plays a non-negligible role in determining the dynamics of major macroeconomic variables. This study constructs a factor model with time-varying loadings to decompose the variance of important macroeconomic and financial series for the top 10 oil-producing countries into the contributions from country-specific uncertainty and common uncertainty. The relative importance of the uncertainty estimates in explaining volatility in production, investment, total exports, the exchange rate, and stock prices seems to vary over time, with evidence of alternating periods of high and low persistent uncertainty. Global uncertainty plays a primary role output growth, investment, exports, and stock prices in all countries. Globalization and trade openness contribute to amplifying the international transmission of volatility, explaining the increasing importance of the global uncertainty factor.