An asymmetric analysis of the J‐curve effect in the commodity trade between China and the US

This paper follows a non‐linear ARDL error‐correction approach to examine the presence of the J‐curve in the commodity‐level trade between the United States and China. The analysis disaggregates the US–China trade flows by commodities and separately examines the trade balance responses of 97 commodities to the changes in the real yuan–US$ exchange rates. The analysis at the commodity level alleviates potential aggregation bias that is present in earlier studies offering little evidence for long‐run asymmetric effects of exchange rate on the China–US trade balance. We find strong support for short‐run asymmetric effects in the case of two‐third of the commodities, whereas significant long‐run asymmetric effects are present in the case of one‐third of the commodities including those commodities which command large shares in the China–US trade.     

TIME‐CHANGED ORNSTEIN–UHLENBECK PROCESSES AND THEIR APPLICATIONS IN COMMODITY DERIVATIVE MODELS

This paper studies subordinate Ornstein–Uhlenbeck (OU) processes, i.e., OU diffusions time changed by Lévy subordinators. We construct their sample path decomposition, show that they possess mean‐reverting jumps, study their equivalent measure transformations, and the spectral representation of their transition semigroups in terms of Hermite expansions. As an application, we propose a new class of commodity models with mean‐reverting jumps based on subordinate OU processes. Further time changing by the integral of a Cox–Ingersoll–Ross process plus a deterministic function of time, we induce stochastic volatility and time inhomogeneity, such as seasonality, in the models. We obtain analytical solutions for commodity futures options in terms of Hermite expansions. The models are consistent with the initial futures curve, exhibit Samuelson's maturity effect, and are flexible enough to capture a variety of implied volatility smile patterns observed in commodities futures options.     

The Valuation of Equity Futures on the Tokyo Stock Exchange: 1920–1923

The futures price of an asset should depend on the spot price of that asset, the interest rate, cash flows during the contract term, the convenience yield, and storage costs. Despite many tests of the spot–future relation for commodities in historical periods, there have been no tests of this historical relation for equities. We price single‐stock equity futures on the Tokyo Stock Exchange between 1920 and 1923 and find that mispricing is considerably worse than in contemporary U.S. markets, after adjusting for (unavoidable) asynchronous data issues. The main cause of the mispricing is short‐sales constraints, rather than investor naivety. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark     

An empirical analysis of multi‐period hedges: Applications to commercial and investment assets

This study measures the performance of stacked hedge techniques with applications to investment assets and to commercial commodities. The naive stacked hedge is evaluated along with three other versions of the stacked hedge, including those which use exponential and minimum variance ratios. Three commercial commodities (heating oil, light crude oil, and unleaded gasoline) and three investment assets (British Pounds, Deutsche Marks, and Swiss Francs) are examined. The evidence suggests that stacked hedges perform better with investment assets than with commercial commodities. Specifically, deviations from the cost‐of‐carry model result in nontrivial hedge errors in the stacked hedge. Exponential and minimum variance hedge ratios were found to marginally improve the hedging performance of the stack. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:587–606, 2005     

Cross‐commodity analysis and applications to risk management

The understanding of joint asset return distributions is an important ingredient for managing risks of portfolios. Although this is a well‐discussed issue in fixed income and equity markets, it is a challenge for energy commodities. In this study we are concerned with describing the joint return distribution of energy‐related commodities futures, namely power, oil, gas, coal, and carbon. The objective of the study is threefold. First, we conduct a careful analysis of empirical returns and show how the class of multivariate generalized hyperbolic distributions performs in this context. Second, we present how risk measures can be computed for commodity portfolios based on generalized hyperbolic assumptions. And finally, we discuss the implications of our findings for risk management analyzing the exposure of power plants, which represent typical energy portfolios. Our main findings are that risk estimates based on a normal distribution in the context of energy commodities can be statistically improved using generalized hyperbolic distributions. Those distributions are flexible enough to incorporate many characteristics of commodity returns and yield more accurate risk estimates. Our analysis of the market suggests that carbon allowances can be a helpful tool for controlling the risk exposure of a typical energy portfolio representing a power plant. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:197–217, 2009     

Multi‐period hedge ratios for a multi‐asset portfolio when accounting for returns co‐movement

This study presents a model to select the optimal hedge ratios of a portfolio composed of an arbitrary number of commodities. In particular, returns dependency and heterogeneous investment horizons are accounted for by copulas and wavelets, respectively. A portfolio of London Metal Exchange metals is analyzed for the period July 1993–December 2005, and it is concluded that neglecting cross correlations leads to biased estimates of the optimal hedge ratios and the degree of hedge effectiveness. Furthermore, when compared with a multivariate‐GARCH specification, our methodology yields higher hedge effectiveness for the raw returns and their short‐term components. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:182–207, 2008     

Commercial Real‐Estate Inventory and Theory of Storage

Real estate, like commodities, belongs to the category of alternative investments. Even though the characteristics of real estate are fairly different from those of crude oil or copper, inventory plays a crucial role in both cases. Our goal in this study is to investigate whether the theory of storage, as developed by Kaldor (1939) and Working (1949), then thoroughly analyzed for various commodities, can be extended to real estate. We take advantage of recent Futures data on the main U.K. commercial property index as well as a proprietary inventory database in order to test in this setting, and for the first time to our knowledge, the validity of the theory of storage for this asset class. The empirical evidence, covering data of the period 2008–2010, suggests that its main results can interestingly be extended to commercial real estate. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark     

GENERALIZATION OF THE DYBVIG–INGERSOLL–ROSS THEOREM AND ASYMPTOTIC MINIMALITY

The long‐term limit of zero‐coupon rates with respect to the maturity does not always exist. In this case we use the limit superior and prove corresponding versions of the Dybvig–Ingersoll–Ross theorem, which says that long‐term spot and forward rates can never fall in an arbitrage‐free model. Extensions of popular interest rate models needing this generalization are presented. In addition, we discuss several definitions of arbitrage, prove asymptotic minimality of the limit superior of the spot rates, and illustrate our results by several continuous‐time short‐rate models.     

Mean Reversion and the Comovement of Equilibrium Spot and Futures Prices: Implications from Alternative Data‐Generating Processes

The comovements of spot and futures prices are characterized by six binary variables, including the term structure curvature of futures prices. These variables are used to uniquely identify 48 possible comovement patterns. Among them, 24 cases are associated with mean reversion, which is defined as a state when spreads between futures and spot prices are shrinking. These pattern frequencies are then calculated on a daily basis with the futures prices of 10 commodities, including precious metal, agricultural, and financial commodities. The results are further compared to simulation output from three data‐generating processes: a bivariate pure random walk, a mixed random walk with first‐order autoregression (AR(1)), and an error‐correction representation. The mean‐reverting frequencies for all 10 commodities are about 50%. Around half of the time, spot and futures prices are moving toward each other, and the rest of the time they move in the same direction. The symmetry of these results implies that the existence of substantial shocks originated from futures markets; thus, this is consistent with the risk premium view of futures trading. Also, although all simulation models produce similar mean‐reversion frequencies, the patterns of comovements of spot and futures prices are different, and the price dynamics depend heavily on whether the market is dominant contango or backwardation. Furthermore, the error‐correction model outperforms the random‐walk model for agricultural commodities, and the mixed random walk with AR(1) is hardly distinguishable from the pure random walk. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:769–796, 2001     

Critique of the Corn–Guano Model

It is argued that the corn–guano model proposed by Bidard and Erreygers is too simple as a representation of Hotelling's theory because it does not reflect the distinction between the resource in situ and the extracted resource. The claim to have transposed the representation of Hotelling's theory from the neoclassical to a classical context is not warranted because normal prices are not used. The model is elegant in its simiplicity but it does not face the relevant problems of exhaustible resources posed by the real world.     

Predicting financial volatility: High‐frequency time‐series forecasts vis‐à‐vis implied volatility

Recent evidence suggests option implied volatilities provide better forecasts of financial volatility than time‐series models based on historical daily returns. In this study both the measurement and the forecasting of financial volatility is improved using high‐frequency data and long memory modeling, the latest proposed method to model volatility. This is the first study to extract results for three separate asset classes, equity, foreign exchange, and commodities. The results for the S&P 500, YEN/USD, and Light, Sweet Crude Oil provide a robust indication that volatility forecasts based on historical intraday returns do provide good volatility forecasts that can compete with and even outperform implied volatility. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1005–1028, 2004     

A generalization of the Samuelson reciprocity relation,the Stolper-Samuelson theorem and the Rybczynski theorem under variable returns to scale

Assuming the Marshallian externalities, a generalization of the Samuelson reciprocity relation, the Stolper–Samuelson theorem and its dual Rybczynski theorem is demonstrated with n commodities and n inputs. Further it is shown that the ‘weak’ Stolper–Samuelson property does not coincide with the ‘strong’ property even when n=2. Then the effect of an own or other commodity price change on a commodity output is examined.     

Managerial Opportunism and Capital Structure Adjustments: Equity–for–debt Swap and Convertible Debt

This paper shows how capital structure adjustments through an equity–for–debt swap and convertible debt can resolve the inefficiency caused by managerial opportunism. We consider a situation in which a corporate manager's investment decision is affected by the firm's debt level. Although both an equity–for–debt swap and convertible debt can induce the self–interested manager to undertake only value–increasing projects through capital structure adjustments, there exists a significant difference between these two financial instruments. An equity–for–debt swap, which requires the agreement of both shareholders and debt holders, can change a firm's debt level only prior to the manager's investment decision. On the other hand, convertible debt, which gives debt holders a unilateral right to convert, can change a firm's debt level even after the manager's investment decision.     

The Short– and Long–run Performance of New Listings in Tunisia

This study examines abnormal stock market returns of new listings on the Tunisian Stock Exchange. Substantial positive abnormal returns are found on the first listing day and this finding is similar to that obtained in other countries. Subsequent performance is poor and investors who bought shares at the close of trading on the first day would have lost about 22% against the Tunis Stock Exchange index over a three–year period. The possible causes of this are investigated. Among the factors found in the literature that possibly affect the level of long–term performance, only the state of the IPO market, the initial return, the delay in reaching the ‘first market price’ and the size of the firms have significant coefficients. This result is supportive of the traditional fad’s interpretation of long–term underperformance.     

Arbitrage,cointegration, and the joint dynamics of prices across discrete commodity futures auctions

Underlying the search for arbitrage opportunities across commodity futures markets that differ in market structure is the idea that the futures prices for similar commodities that are traded on different exchanges adjusted for differences in currency, delivery time (if any), location, and market structure are equal. This article examines price linkages in competing discrete commodity futures auction markets. We find no evidence of cointegration of futures prices of similar commodities traded on two contemporaneous discrete auction futures exchanges in Asia. We also find no evidence of arbitrage activities across these two Asian exchanges, though this does not preclude arbitrage activities with North American continuous auction markets. This lack of cointegration may be due to nonstationarities in the trading cost component. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 799–815, 1999     

Interdependencies between agricultural commodity futures prices on the LIFFE

Interdependencies between commodity prices can arise from the impact of changing macroeconomic variables, from complementarities or substitutabilities between commodities, or from common responses by speculators. Malliaris and Urrutia (1996) found significant linkages between rollover prices of six related agricultural commodities on the Chicago Board of Trade. This article examines interdependencies between futures prices for soft commodities traded on the London International Financial Futures Exchange (LIFFE), calculated using Clark indices. Results show that there are no interdependencies between any two prices; price discovery of one contract provides no information about others. © 2002 John Wiley & Sons, Inc. Jrl Fut Mark 22: 269–280, 2002     

Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD, 1990–1996

Since the early seventies an increasing attention has been paid to the impact environmental polict nmight have on foreign trade. One of the most important issues is whether countries with relatively strict environmental regulations tend to experience a deterioration of international competitiveness and thus a fall in exports and a rise in imports, of the pollution‐intensive commodities or, on the other hand, benefit from the improvement in environmentally more sensitive industries. So far, most empirical studies have concluded that the proportion of environmental costs to the total production costs is still so marginal that environmental policies have hardly any effect on comparative advantage patterns and thus on foreign trade. One of the few exceptions is Van Beers and Van den Bergh (1997), who found that stricter regulations have some negative impact on bilateral trade flows between OECD countries. The aim of this paper is to show that tyhis outcome is partly due to model mis‐specification. The analysis id based on a triple indexed model and on its variants. It is found that, as soon as both the importing and exporting country specific effects are taken into consideration, the relationship between stricter regulations and foreign trade becomes statistically insignificant. This suggests that environmental costs do not have a real impact, neither negative nor positive, on foreign trade.     

The Binomial Black–Scholes model and the Greeks

This article returns to the choice of method for calculating option hedge ratios discussed by Pelsser and Vorst (1994). Where they demonstrated that numerical differentiation of a binomial model compared poorly to their design of an extended tree, this study shows that the Binomial Black–Scholes method advocated by Broadie and Detemple (1996) does not suffer from the same problem; therefore, it is very effective in the calculation of the Greeks. © 2002 John Wiley & Sons, Inc. Jrl Fut Mark 22:143–153, 2002     

Advancing means–end chains by incorporating Heider's balance theory and Fournier's consumer–brand relationship typology

Means–end chain theory proposes that knowledge held in consumer's memory is organized in a hierarchy with concrete thoughts linked to more abstract thoughts in a sequence progressing from means (i.e., product features), to psychological and social consequences, and finally to ends (i.e., fulfillment of personal values). This article proposes several advances in the theory. First, specific buying and consumption situations serve as frames of reference when consumers are thinking about products and alternative features of products and brands. Second, states of psychological imbalance may occur in consumers' minds among linkages retrieved automatically for features–consequences and consequences–values; thus, Heider's balance theory informs means–end chain theory and research. The theoretical and practical usefulness of means–end research increases from asking consumers to name an acceptable alternative to the product and brand used in a recent consumption situation, as well as an unacceptable option, and to describe the features–consequences–values of these options; consequently, Fournier's alternative relationships of consumer–brands (e.g., casual friendships, marriages, enmities) become relevant for means–end chain theory. To examine the propositions empirically, the article describes psychological schemas for four means–end chains that link two consumers' recent lived consumption situations to personal values. © 2004 Wiley Periodicals, Inc.     

Supply Chain Performance Based on the Lean–Agile Operations and Supplier–Firm Partnership: An Empirical Study on the Garment Industry in Indonesia

The purpose of this study is to explore how lean–agile operations and supplier–firm partnership can improve garment small and medium enterprise (SME) supply chain performance. This study is based on cross‐sectional survey research that provides longitudinal evidence to show how lean–agile operations and partnership strategy influence supply chain and garment SME performance. To clarify the relationships among these constructs, structural equation model (SEM) is conducted to examine the model fit and the five hypotheses. The result shows that agile supply chain and partnership strategy are critical for garment SMEs because these strategies influence their supply chain performance. However, the leanness strategy does not necessarily influence their supply chain performance. The supply chain performance and partnership strategy have a positive influence on the SME performance.