Commodities and financial variables: Analyzing relationships in a changing regime environment

This paper examines the dynamic interrelationships among four highly internationally traded commodities, oil, copper, gold and silver and three commodity-relevant financial variables including short-run interest rate, exchange rate and the world equity index. We explore these interrelationships using weekly time series in a regime switching environment. The results clearly show that the interrelationships are not only regime-dependent but there is also predictive information on those relationships across the two regimes classified by the level of uncertainties. The findings are likely to be of interest to both investors and policy makers. Contrary to other related studies, the results point to mixed evidence of directional relationships between these widely traded individual commodities and macro-financial variables, depending on the regimes.     

Standardized Multinational Advertising: The Influencing Factors

Abstract

Advertising for multinational products uses standardization most often in strategy, less often in executions, and least often in language. This study's international sample of advertising agency executives considers creative impact the most important and pressure (from time, client, etc.) the least important reason to use some form of standardized advertising. Despite this, it is views on client pressure which explain most of the variance in views on future use of standardization. That is, those respondents who believe that client pressure is increasing also believe that overall use of standardization will increase. A separate sample of agency executives reinforced some of these findings, particularly the role of the successful, big idea and client pressure in making the decision to standardize. Copy research also plays a role in standardization recommendations, but it is not used as extensively as might be necessary.     

Computer-Mediated Customization Tendency (CMCT) and the Adaptive e-Service Experience

Adaptive customization systems are common in the delivery of e-service. However, consumers vary in their reaction to these systems. We introduce computer-mediated customization tendency (CMCT), a composite individual difference variable that reflects a consumer's personal preferences for designing and interacting with adaptive online environments to create valuable e-service experiences. To measure CMCT, we developed a formative index composed of need for control, technology innovativeness, and aesthetic appreciation. The results show CMCT influences adaptive online behavior and the perceived value of the adaptive e-service experience. In addition, customization-prone and customization-averse consumers differ in how they perceive the costs, benefits, and overall value of the experience.     

Return,volatility spillovers and dynamic correlation in the BRIC equity markets: An analysis using a bivariate EGARCH framework

This paper examines the level of integration and the dynamic relationship between the BRIC countries, their respective regions and the world. We find that India shows the highest level of regional and global integration among the BRIC countries, followed by Brazil and Russia and lastly by China. There is a negative relationship between the location conditional volatility of India with that of the Asia-Pacific region and of China with the world, which indicates a presence of diversification opportunities for portfolio investors. Portfolio investors can continue to receive sound returns from taking positions in the index of these countries, however for an outstanding investment performance, they should consider investing in specific areas of growth within the economy rather than the country index.     

Exchange rate volatility and its impact on the transaction costs of covered interest rate parity

This paper provides empirical evidence on the linkage between foreign exchange market volatility and daily 90-day covered interest rate parity (CIP) conditions of the three major exchange rates against the US dollar (US$). Markov regime shifting models were utilized to generate time series of volatility regime probabilities and these were used to explain the first and second moments of the daily deviations from and the transaction cost bands around the covered parity conditions. We find a significant positive relationship between the deviations and the regime probabilities, indicating an increasing probability of higher volatility state being associated with rising deviations (both first and second moments) from the parity condition. Similar positive relationship is found for the transaction bands. Rising (falling) probabilities of high (low) volatility regimes increased the first and second moments of the bands. Furthermore, we find a higher volatility state combined with a US$ depreciation is associated with significantly higher volatility in the daily deviations than an appreciation. Also, US$ depreciation is associated with widening transaction bands. This suggests that the level of market uncertainty was higher when the US$ was depreciating.     

Component structure for nonstationary time series: Application to benchmark oil prices

The oil market is characterized by several hundreds of different grades of crude extracted from various locations on the planet, but prices of those grades are structured with reference to only a handful of benchmark varieties. In this context, the ability to predict near term benchmark oil prices takes on special importance. In this paper, we explore an approach to model the benchmark oil price behaviors using a structure of permanent and transitory components. This initial attempt seems very encouraging at least with respect to one-week ahead forecast and deserves further investigation. In contrast to the equities, the weekly oil permanent components do not seem to be explainable by fundamental factors. However, the returns of the short-run, transitory oil components or cycles, which differ in terms of their degrees of persistence, are mostly affected by contagion spillovers and not by the fundamentals. Their volatilities vary slightly in terms of their sensitivity to major geopolitical events. The overall findings underscore the importance of benefiting more from spillover-catching strategies over diversification ones in the short-run.     

DO AUSTRALIAN SPOT FOREIGN EXCHANGE RATES STILL SHOW EVIDENCE OF COINTEGRATION?

Informational efficiency in the Australian spot foreign exchange market has been examined by other authors, but most of these studies examine a time span that covers the immediate post-float period. This article analyses a period that begins nearly three and a half years after the floating of the Australian dollar and applies Johansen's test to detect any cointegrating relationship in a system of five foreign currencies. It finds no evidence of cointegration and, therefore, supports the proposition of informational efficiency in the foreign exchange market. This result is in contrast to most other such studies of the Australian market and may be partly due to the increasing maturity and sophistication of the market participants in dealing with a floating currency.     

The link between inflation and inflation uncertainty: Evidence from G7 countries

In this paper we adopt the Markov-switching heteroscedasticity model to analyse the inflation series for G7 countries and examine the interaction between inflation rate and its uncertainty over both the short- and long-run. It is found that the relationship between inflation and inflation uncertainty depends on whether the shock is permanent or transitory. The relationship also differs from country to country. High uncertainty about long-run inflation is associated with a significant positive shift in inflation for Canada, Germany, and Japan. High uncertainty about short-run inflation is associated with a significant positive shift in inflation for Germany and USA, and a significant negative shift in inflation for Canada. The modelling approach employed in this paper is empirically supported by various diagnostics including the Vuong test. We also derive the two components of the variance of inflation forecast for a particular forecast horizon. It is found that the inflation uncertainty increases at all horizons in the middle of 1970s and return to the low level in the middle of 1980s.First version received: June 2001/Final version received: October 2003We would like to thank three anonymous referees for many helpful comments and suggestions.     

A Multifactor Model of Credit Spreads

We represent credit spreads across ratings as a function of common unobservable factors of the Vasicek form. Using a state-space approach we estimate the factors, their process parameters, and the exposure of each observed credit spread series to each factor. We find that most of the systematic variation across credit spreads is captured by three factors. The factors are closely related to the implied volatility index (VIX), the long bond rate, and S&P500 returns, supporting the predictions of structural models of default at an aggregate level. By making no prior assumption about the determinants of yield spread dynamics, our study provides an original and independent test of theory. The results also contribute to the current debate about the role of liquidity in corporate yield spreads. While recent empirical literature shows that the level and time-variation in corporate yield spreads is driven primarily by a systematic liquidity risk factor, we find that the three most important drivers of yield spread levels relate to macroeconomic variables. This suggests that if credit spread levels do contain a large liquidity premium, the time variation of this premium is likely driven by the same factors as default risk.     

Inflation uncertainty, growth uncertainty, oil prices, and output growth in the UK

This study examines the transmission and response of inflation uncertainty and output uncertainty on inflation and output growth in the UK using a bi-variate EGARCH model. Results suggest that inflation uncertainty has positive and significant effects on inflation before the inflation-targeting period, but that the effect is significantly negative after the inflation-targeting period. On the other hand, output uncertainty has a negative and significant effect on inflation and a positive effect on growth, while oil price rises significantly increase inflation for the UK. Results also indicate that inflation uncertainty significantly reduces output growth before and after the inflation-targeting period. These findings are robust and the Generalized impulse response functions corroborate the conclusions. These results have important implications for an inflation-targeting monetary policy, and for stabilization policy in general.