Stochastic multifactor models in risk management of energy futures

We adopt Schwartz and Smith's model to calculate risk measures of Brent oil and light sweet crude oil (WTI) futures contracts and Mirantes, Poblacion, and Serna's model to calculate risk measures of natural gas, gasoil, heating oil, RBOB gasoline, PJM Western Hub peak, and off-peak electricity futures contracts. The models generate well in-sample goodness of fit and satisfactory out-of-sample Value-at-Risk and expected shortfall forecasts for all the eight of the analyzed commodities. A simple and flexible estimation method improving upon existing estimation methods is developed.     

Intermediary asset pricing in commodity futures returns

This paper assesses the extent to which intermediary capital (IC) risk contributes toward explaining commodity futures returns. We find that the IC effect is substantially positive and continues to grow as the financialization of commodities deepens. Positive and negative IC risks play asymmetric roles, with the effect of negative IC strengthening in recent subperiods. We further confirm the heterogeneous roles of IC across individual commodities by cross-section analyses. Overall, the effect of the positive IC risk factor varies significantly. Portfolios with low basis, low open interest, low momentum, and low liquidity earn significantly higher returns than counterparty portfolios.     

COVID-19 and tail risk contagion across commodity futures markets

This paper examines the impact of COVID-19 on tail risk contagion across commodity futures markets using a copula-based network method. We document a significant increase in the lower and upper tail contagiousness of commodities following the COVID-19 outbreak. Contagion shows an obvious clustering characteristic, that is, there is higher tail risk connectedness between commodities in the same category. Agricultural commodities are significantly less contagious than metals and energy commodities; soft commodities in particular can offer investors significant diversification benefits. There are several hub commodities in the contagion network, chief among them copper, which are good transmitters of shocks and should be treated with caution by investors and regulators. Although tail risk and contagiousness of individual commodities increase together during the pandemic, we find a negative cross-sectional relationship between tail risk and contagiousness, that is, commodities with high tail risk are not necessarily highly contagious and may even be less so.     

Derivatives pricing with liquidity risk

This paper develops a novel, general derivative pricing model which introduces a liquidity risk factor. The model variants we outline offer a sufficient degree of flexibility so as to enable the valuation of various types of derivative classes including futures, American options, and mortgage backed security options, whereas existing derivative models can only price liquidity risk in European derivatives. We validate the model with oil and gold futures data and compare it to a classical benchmark model void of any liquidity risk. We find that our model is significantly more accurate than the classical model for pricing both oil and gold contracts.     

Predictive abilities of speculators in energy markets

Using nonparametric methodology, I find that speculators are successful in taking profitable positions in energy futures markets, although the magnitude of this effect is lower than that found previously for agricultural markets. A plausible explanation for this difference is that price forecasting is more difficult for energy commodities. Moreover, I find that the energy speculators’ returns are due to the existence of the risk premiums rather than to speculators’ forecasting abilities. Futures risk premium is highly time-variant; notably, energy investors’ profits have been very limited in the GFC and post-GFC period, which coincided with the financialization of commodity markets.     

Block trades in options markets

Block trading, which was sparse before the reduction of the minimum permissible block size threshold in October 2012, currently accounts for about 30% of the trading volume in WTI crude oil options. Block orders share similar characteristics to those routed at the pit, but they have lower information content and face higher execution costs, due to high search costs. However, our results show that such block orders would have been costlier to execute at the pit, which suggests that some pit order flow may have migrated to the upstairs market, contributing to the eventual demise of energy options pits.     

Commodity momentum decomposition

This study decomposes the momentum factor (MOM) in the commodity futures market. A high-to-price (HTP) factor generates a higher Sharpe ratio than a price-to-high (PTH) factor. We uncover that the profitability mechanisms across three momentum factors are different. The positive returns on MOM and PTH are associated with overconfidence and strong self-attribution. In contrast, HTP is linked to investors' underreaction and the information diffusion process. Moreover, we find that positive demand shocks raise the return on HTP.     

Skewness and index futures return

In this paper, we show that the individual skewness, defined as the average of monthly skewness across firms, performs very well at predicting the return of S&P 500 index futures. This result holds after controlling for the liquidity risk or for the current business cycle conditions. We also find that individual skewness performs very well at predicting index futures returns out-of-sample.     

Illiquidity transmission from spot to futures markets

We develop a model of illiquidity transmission from spot to futures markets that formalizes the derivative hedge theory of Cho and Engle (1999). The model shows that spot market illiquidity does not translate one to one to the futures market but, rather, interacts with price risk, liquidity risk, and the risk aversion of the market maker. The model's predictions are tested empirically with data from the stock market and markets for single-stock futures and index futures. The results support our model and show that the derivative hedge theory provides an explanation for the liquidity link between spot and futures markets.     

How to hedge if the payment date is uncertain?

This paper investigates how firms should hedge price risk when payment dates are uncertain. We derive variance-minimizing strategies and show that the instrument choice is essential for this problem, similar to the choice between a strip and a stack hedge. The first setting concentrates on futures hedges, whereas the second allows for nonlinear derivatives. In both settings, firms should take positions in derivatives with different maturities simultaneously. We present an empirical analysis for commodities and exchange rates, showing that in both settings the optimal strategy clearly outperforms the commonly used heuristic strategies which consider only one hedging instrument at a time.     

我国商业银行系统性风险评估与实证研究——基于预期期望损失方法测度

文章对我国商业银行系统性风险进行评估,采用系统性预期期望损失和边际预期期望损失两个测度变量,以此作为系统重要性指数,通过预期期望损失方法利用我国14家上市商业银行的面板数据评估我国商业银行系统性风险水平。实证结果表明：国有银行系统重要性虽然占据主要地位,但系统性风险贡献排名却远低于其他商业银行,主要原因是国有银行的现金流更稳定,政府隐性担保及政策优惠对弱化系统性风险贡献度有很大帮助。另外我国中小城市商业银行更有可能带来系统性风险,因为股份制商业银行资产总规模虽然相对较小,但资产扩张速度过快、盈利大幅波动、资本充足率低且负债率较高,相比较国有银行更需要得到监管部门的重点监管。     

A novel risk management framework for natural gas markets

This paper examines dynamic hedges in the natural gas futures markets for different horizons and explores the gains from devising risk management strategies. Despite the substantial progress made in developing hedging models, forecast combinations have not been explored. We fill this gap by proposing a framework for combining hedge-ratio predictions. Composite hedge ratios lead to significant reduction in portfolio risk, whether spot prices are partially predictable or not. We offer insights on hedging effectiveness across seasons, backwardation-contango conditions and the asymmetric profiles of long-short hedgers. We conclude that forecast combinations better reconcile realized performance with the hedging process, mitigating model instability.     

中国股指期货初探

随着中国资本市场的不断规范发展 ,股票指数期货作为一种行之有效的避险工具 ,已逐渐成为一个热门话题。作者分析了股指期货的概念及现实意义 ,并提出了相关设想和设计股指期货合约 ,对如何在中国开设股指期货交易提出了较系统的建议。     

Investigating the unobserved heterogeneity in consumers’ sensitivity to the price of gasoline

We empirically examined how gasoline prices impact consumers’ shopping behaviors. Using individual panel data on gasoline transactions, we found that gasoline prices generally have a statistically and economically significant impact. However, our disaggregate analysis indicated that, across consumers, considerable heterogeneity was present in the underlying sensitivity to the price of gasoline and in the income effect, resulting from fluctuating gasoline prices. More interestingly, the significant effect of gasoline prices was largely driven by the consumers with large purchase volume, and consumers with the highest level of gasoline consumption remained almost perfectly insensitive to the price of gasoline. Such heterogeneity is also present in the effect of gasoline prices on grocery expenditures, and notably, consumers with the largest purchase volume were not associated with statistically significant changes in grocery expenditures. Theoretical background suggests that the financial constraints of consumers and primary vehicle use may explain about the differences in responses to gasoline prices. Results based on individual-level data allowed for a comprehensive understanding of how and how much gasoline prices affect consumer behaviors and showed that inelastic gasoline demand and the considerable income effect due to gasoline prices may not best describe the effect of gasoline prices.     

Can corporate financing through the stock market create systemic risk? Evidence from the BRVM securities market

This paper investigates the systemic risk in the West African Economic and Monetary Union (WAEMU) stock exchange (Bourse Régionale des Valeurs Mobilières - BRVM). It examines the extent to which growing activities in this stock market generate systemic risk. We find strong linkages across all economic sectors of listed firms, with the financial and industrial sectors being the center of the system around which the other sectors revolve. Financial institutions are not the only source of systemic risk in the WAEMU region, even though they play an important role in the system. Finally, using panel regressions, we find that big, high-growth and profitable firms contribute more to systemic risk than others. Overall, we find that the determinants of systemic risk depend on the indicator used to assess it and the sectors in which companies operate.     

Can commodity futures risk factors predict economic growth?

This paper examines whether commodity futures risk factors can predict future economic growth. We test risk factors capturing various spot or term premia and find that only three factors capturing term premia on the basis-momentum, basis, and change in slope are robust predictors for future economic growth, especially for long horizons. Our findings highlight the importance of the term premia, rather than the spot premia on which the literature has mainly focused. Moreover, we find that possible explanations for predictability of commodity factors—the intertemporal asset pricing model and information diffusion explanation—are all inconsistent with our empirical results.     

Is the Retail Gasoline Market Local or National?

This paper studies the effect of station density on prices in the retail gasoline market in the Czech Republic. We estimate the impact of the number of competing stations in various driving-distance ranges around each station on prices. We find that station density has a negative effect on prices; the effect decreases with distance and is statistically significant up to six kilometers. This suggests that the retail gasoline market is local rather than national.     

论中国利率市场化进程与利率期货的推出

中国利率市场化的进程正在有步骤地加速推进,利率的市场化必然带来利率波动幅度的加大,如果没有有效的利率风险管理工具作为配套机制,必然会影响利率市场化的顺利进展,也影响到整个金融市场应有作用的发挥.发达国家的经验表明,利率市场化要求利率期货作为利率风险管理的机制予以配合,因此,在推进中国利率市场化的进程中应研究推出利率期货交易的问题.利率期货的最主要承载体是国债期货.根据中国目前利率市场化进展的实际情况,从各类经济实体已经或可能面临的利率风险看,对国债期货的需求日渐强烈.本文的主旨是,在论述中国利率市场化进程中,分析各类经济实体所面临的各种利率风险,以及国债期货对于这一风险管理所起的应有作用,从而得出应当推出国债期货的结论.     

How about selling commodity futures losers?

This paper explores the benefits of extending the investment universe to commodity futures, from the perspective of momentum traders. We find that the growth-optimal portfolio includes negative (positive) weights on commodity futures losers (stock winners). Motivated by this finding, we construct a joint momentum strategy, buying stock winners and selling commodity futures losers, and show that it generates an average monthly return of up to 1.91% and provides much lower skewness (0.04) and kurtosis (1.27) than a traditional stock momentum strategy. It also greatly improves profitability, especially in unfavorable market states, and thus effectively manages tail risk.     

Futures market hedging efficiency in a new futures exchange: Effects of trade partner diversification

This paper uses transaction data to examine hedging efficiency in a new futures exchange; the Fish Pool salmon futures exchange in Norway. The paper utilizes data on firm-level exporter/importer transaction prices to quantify firm-level futures hedging efficiency. This allows us to address heterogeneity in hedging efficiency and basis risk at the firm level. The main result of this paper shows that larger firms with greater trade partner diversification have lower basis risk. Such firms align their internal transaction price closer to the common spot price in the market, which encourages greater futures market participation. Results are discussed in light of recent declines in participation in the salmon futures exchange.