Revisiting the shock and volatility transmissions among GCC stock and oil markets: A further investigation

The paper explores the empirical evidence of the volatility interactions among the Gulf Cooperation Council (GCC) stock markets and world oil price over the weekly period spanning from June 24, 2005 to March 25, 2011. The study is conducted based on the BEKK-GARCH process developed by Kroner and Ng (1998) and outlining the asymmetry in the conditional variances of the stock and oil markets. The findings show evidence of shock and volatility linkages among GCC stock and oil markets, and reveal that the spillover effects are more apparent for volatility patterns. They also indicate that the stock and oil markets exhibit asymmetry in the conditional variances. From the perspective of portfolio strategies, the results display certain sensitivity to the GCC stock prices, allowing thus better understanding of the relationship between each stock market and oil price. Our findings are crucial for practitioners, policy makers and investors who seek to make earnings by diversifying their portfolios.     

Return and volatility transmission between oil prices and oil-exporting and oil-importing countries

This paper provides further evidence of the comovements and dynamic volatility spillovers between stock markets and oil prices for a sample of five oil-importing countries (USA, Italy, Germany, Netherland and France) and four oil-exporting countries (United Arab Emirates, Kuwait, Saudi Arabia and Venezuela). We make use of a multivariate GJR-DCC-GARCH approach developed by Glosten et al. (1993). The results show that: i) dynamic correlations do not differ for oil-importing and oil-exporting economies; ii) cross-market comovements as measured by conditional correlation coefficients increase positively in response to significant aggregate demand (precautionary demand) and oil price shocks due to global business cycle fluctuations or world turmoil; iii) oil prices exhibit positive correlation with stock markets; and iv) oil assets are not a good ‘safe haven’ for protection against stock market losses during periods of turmoil.     

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

This study examines the non-linear relationship between stock markets in GCC countries and their country risk ratings as well as with major macroeconomic factors. Based on a dynamic panel threshold model with two and four regimes, the results provide evidence of short-term asymmetry between first-lagged GCC stock returns and the performance of GCC stock markets. In addition, only the financial risk (FR) rating has a significant positive effect on the performance of GCC stock markets according to the prevailing regimes for the GCC lagged returns and the Brent oil market. Among the macroeconomic factors, improvements in the global stock markets, the MSCI Global Islamic Index, and the oil price increased the performance of GCC stock markets, whereas increases in the gold price, the 3-month U.S. Treasury bill rate, and the U.S. Treasury bond rate reduced the performance of the GCC stock markets. These results have important implications for investors, policymakers, and portfolio managers.     

Asset prices and expected monetary policy: evidence from daily data

This article explores the relationships among Libor, gold prices, the exchange rate, oil prices, fed funds futures prices and stock prices at a daily frequency. This article examines whether expected monetary policy, measured by changes in the prices of fed funds futures contracts, reacts to high frequency changes in asset prices and, in turn, whether asset prices respond to changes in expected monetary policy. The article reveals that there are statistically significant relationships between expected US monetary policy and shocks to Libor and exchange rates. It also reveals that there is no evidence of a systematic relationship between stock prices and expected monetary policy changes. Splitting the data into expansionary and recessionary periods using NBER dating, we find results for the expansionary periods that are very similar to the results for the entire period. For the periods of recession, we find little evidence of significant linkages between markets.     

Assessing volatility transmission between Brent and stocks in the major global oil producers and consumers – the multiscale robust quantile regression

This paper investigates the volatility transmission effect between Brent oil futures and stock markets in the major global oil producing and consuming countries – the U.S., Russia, China and Saudi Arabia. In that process, we employ a mixture of novel and elaborate methodologies – wavelet signal decomposing procedure, GARCH model with complex distribution and recently developed robust quantile regression. Our results indicate that the effect is stronger in short-term horizon than in midterm and long-term in most cases. The magnitude is much stronger in turbulent times, whereas in tranquil times, this effect is very weak. We find that Russian RTS index endures the strongest volatility transmission effect from oil market. Surprisingly, Saudi stock market does not suffer heavy spillover effect even in the periods of increased market unrest. In the U.S. and China, the effect is much stronger from stocks to oil than vice-versa, and this particularly applies for the U.S. case.

     

Co-movements of GCC emerging stock markets: New evidence from wavelet coherence analysis

This paper examines the short term and long term dependencies between stock market returns for the Gulf Cooperation Council (GCC) Countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) during the period 2005–2010. Our empirical investigation is based on the wavelet squared coherence which allows us to assess the co-movement in both time-frequency spaces. Our results reveal frequent changes in the pattern of the co-movements especially after 2007 for all the selected GCC markets at relatively higher frequencies. We further note an increasing strength of dependence among the GCC stock markets during the last financial crisis signifying enhanced portfolio benefits for investors in the short term relative to the long term. On the financial side, we uncover that the strength of co-movement between GCC markets may impact the multi-country portfolio's value at risk (VaR) levels. These findings provide potential implications for portfolio managers operating in the GCC region who are invited to consider co-movement through both frequencies and time when designing their portfolios.     

Return and volatility transmission between world oil prices and stock markets of the GCC countries

This paper investigates the return links and volatility transmission between oil and stock markets in the Gulf Cooperation Council (GCC) countries over the period 2005-2010. We employ a recent generalized VAR-GARCH approach which allows for transmissions in return and volatility. In addition, we analyze the optimal weights and hedge ratios for oil-stock portfolio holdings. On the whole, our results point to the existence of substantial return and volatility spillovers between world oil prices and GCC stock markets, and appear to be crucial for international portfolio management in the presence of oil price risk.     

Extracting portfolio management strategies from volatility transmission models in regime-changing environments: Evidence from GCC and global markets

Unlike previous studies, this paper uses the Multi-Chain Markov Switching model (MCMS) to examine portfolio management strategies based on volatility transmission between six domestic stock markets of Gulf Arab states (GCC) and global markets (i.e., the U.S. S&P 500 index and oil prices) and compares the results with those of the VAR model. Our volatility approach is range-based and not return-based which is traditionally used in estimating the optimal hedge ratios and portfolio weights. The results demonstrate the relative hedging effectiveness of the MCMS model compared to the VAR. We also highlight the time and regime dependency of the optimal hedge ratios and the portfolio weights for each selected pair of the considered markets conditional on the regime of the same market and the regimes of the other market. Policy implications on portfolio strategies under different states are also discussed.     

期货市场与现货市场之间的价格研究--中国农产品市场的经验

本文借助于信息共享模型与波动溢出效应模型对我国大豆和小麦的期、现货市场之间的价格发现进行了多层次的实证研究,定量描述了期、现货市场在价格发现中作用的大小,深入刻画了我国农产品期、现货市场之间的动态关系.研究结果显示:大豆期、现货价格之间存在双向引导关系,小麦仅存在期货对现货的单向引导关系;期、现货市场均扮演着重要的价格发现角色,且期货市场在价格发现中处于主导地位;期、现货市场之间均存在双向波动溢出关系,但现货市场来自期货市场的波动溢出效应均强于期货市场来自现货市场的波动溢出效应;并且,随着期货市场的发展,期、现货市场之间的波动溢出程度均呈逐渐增强态势.     

非同步交易下股指期货与股票市场开收盘收益率间引导关系的实证研究

运用Granger因果检验、脉冲响应函数分析和方差分解,基于819组5分钟高频数据,对沪深300股指期货及其股票指数的开盘价格、收盘价格之间的引导关系进行检验。结果表明:期货市场与股票市场的开盘收益率相互引导;期货市场收盘收益率引导现货市场的收盘收益率和第二天开盘收益率;期货市场受自身和现货市场新息的冲击;现货市场受自身新息的冲击较大;期货市场对现货市场新息的变动更敏感;期货与现货的开盘收益率变化的总方差主要来自于现货市场,期货与现货的收盘收益率变化的总方差主要来自于期货市场。     

Financialization of agricultural commodities: Evidence from China

Speculation in the commodity futures market distorts commodity prices, driving them away from rational levels. This phenomenon, which is known as the financialization of commodities, has raised significant concerns in recent years. Particularly, in the agricultural market, ‘financialized’ commodities have been blamed for high world food prices. In this paper, we examine the financialization of agricultural commodities in China. To do so, a time-varying copula is employed to investigate the dependence structure between commodities and stock markets. Four insightful results are obtained. First, positive correlations between agricultural commodities and stock markets demonstrate the financialization of agricultural commodities. Second, the identified correlations are time-varying and idiosyncratic with respect to products. Third, the agricultural commodity market is more closely correlated with the domestic stock market than with the overseas market. Fourth, a growing dependence between commodities and the stock markets is detected and the co-movement became stronger after the global financial crisis.     

Intraday return and volatility relationships between the Ibex 35 spot and futures markets

This paper analyses the intraday lead-lag relationships between returns and volatilities in the Ibex 35 spot and futures markets. Using hourly data, we jointly analyze the interactions between markets, estimating a bivariate error correction model with GARCH perturbations which captures stochastically the presence of an intraday U-shaped curve for both spot and futures market volatility. Our findings show a bidirectional causal relationship between market volatilities, with a positive feedback. This two-way transmission of volatility is consistent with market prices evolving according to a long-run equilibrium relationship, and shocks affecting both markets in the same direction. Our empirical results also support a unidirectional cross interaction from futures to spot market returns. This pattern suggests that the futures market leads the spot market in order to incorporate the arrival of new information.     

Pass-through in United States beef cattle prices: a test of Ricardian rent theory

Feeder cattle are fattened to become fed live cattle 6 months later, and the feeder cattle stock is fixed in the short-run. Efficiency in competitive markets suggests feeder cattle prices should fully reflect feed prices and information on future fed cattle prices. Employing a long time series (1979–2004) of feeder cattle futures, live cattle futures, and local corn prices, we test whether complete pass-through occurs. For fed cattle futures prices, we find about 93% of complete pass-through to present feeder cattle prices. The corresponding negative effect of a corn price increase is about 87% of complete pass-through. In contrast with imperfectly competitive agricultural land rental markets, the results support the hypothesis of Ricardian rent extraction by the scarce asset owner in feeder cattle markets.     

Stochastic dominance relationships between stock and stock index futures markets: International evidence

In this paper, we first modify the stochastic dominance (SD) test for risk averters proposed by Davidson and Duclos (2000) to be the SD test for risk seekers. We then adopt both tests to examine the SD relationships between stock indices and their corresponding index futures for 10 countries. The sample contains data from 6 developed countries and 4 developing countries. The study proposes that there should be no SD relationship between spot and futures markets in developed financial markets in which arbitrage opportunities (both pure and quasi) are rare and short-lived. However, we expect that SD relationships could be found in emerging financial markets that have more impediments to arbitrage. Consistent with this conjecture, our study finds that there are no SD relationships between spot and futures markets in the mature market sample, implying that these markets could be efficient. However, for the emerging markets, spot dominates futures for risk averters, while futures dominate spot for risk seekers in the second- and third-order SD. These results indicate that there are potential gains in expected utilities for risk averters (seekers) if they switch their investment from futures (spot) to spot (futures) in the emerging markets.     

FUTURES MARKET EFFICIENCY,THE UNBIASEDNESS HYPOTHESIS AND VARIANCE-BOUNDS TESTS: THE CASE OF THE FTSE-100 FUTURES CONTRACT*

The efficiency of futures markets is critical to their price discovery role. This paper investigates the joint hypothesis of market efficiency and unbiasedness of futures prices for the FTSE-100 stock index futures contract. Unlike previous studies, it tests for both long-run and short-run efficiency using cointegration and error correction models. Variance-bounds tests are developed and utilized for examining the question of efficiency. Results show that the market is efficient and provides an unbiased estimate of future spot prices for one and two months away from expiration. However, for three and more months away from expiration this is not the case, which has implications for the users of this market.     

Dynamic hedge ratio for stock index futures: application of threshold VECM

This study represents one of the first papers in stock-index-futures arbitrage literature to investigate the effects of arbitrage threshold on stock index futures hedging effectiveness by using threshold vector error correction model (hereafter threshold VECM). Moreover, in contrast to prior studies focusing on examining case studies involving mature stock markets, this study not only adopts US S&P 500 stock market as the sample but also adds an analysis of one emerging stock market, Hungarian BSI and examines the differences between them. Finally, this investigation employs a rolling estimation process to examine the impact of arbitrage threshold behaviours on the setting of futures hedging ratio. The empirical findings of this study are consistent with the following notions. First, arbitrage behaviour reduces co-movement between futures and spot markets and increases the volatility of both futures and spot markets. Second, this article denotes the outer regime of futures-spot market for the case of Hungarian BSI (US S&P 500) as a crisis (an unusual) condition. Moreover, arbitrage threshold behaviours make remarkable (unremarkable) shift on optimal hedge ratio between two different market regimes for the case of Hungarian BSI (US S&P 500). Finally, the framework involving regime-varying hedge ratio designed in this study provides a more efficient futures hedge ratio design for Hungarian BSI stock market, but not for US S&P 500 stock market.     

The forecasting approach to efficiency in the wool market

This paper develops and presents estimates of a simultaneous equations model of the Australian wool market, the world's largest producer and exporter of fine wool. The model contains functional relationships for unhedged inventories, consumption of raw wool, and the activities of both hedgers and speculators in wool futures. Expectations are represented by the adaptive hypothesis. This model extends the work of Leuthold and Hartmann (1979) and Leuthold and Garcia (1988) by including expectations in the spot-futures model, and that of Goss and Giles (1986) by including composite equations for hedger-speculators, extending the expectations hypothesis to the consumption equation, and by using the model to test the efficient markets hypothesis. Wald tests and likelihood ratio tests for unit roots in wool cash prices are conducted and in no case can the hypothesis of a single unit root be rejected. Estimation is by three stage least squares, with correction for first order serial correlation. The model provides good intra- and post-sample forecasts of most variables, especially of unhedged inventories and consumption of wool, both important spot market relationships. The model-derived forecast of the spot price is inferior to the forecast implicit in the futures price, although a compositive predictor clearly outperforms the futures price as an anticipation of subsequent cash prices. Nevertheless, it is suggested that the efficient markets hypothesis should not be rejected, because there is evidence that futures market agents are learning to use the information contained in the model.     

Relationships among U.S. oil prices and oil industry equity indices

The cointegration analysis suggests that the pure oil industry equity system and the mixed oil price/equity index system offers more opportunities for long-run portfolio diversification and less market integration than the pure oil price systems. On a daily basis, in the oil price systems all oil prices with the exception of the 3-month futures can explain the future movements of each other. In the mixed system, none of the daily oil industry stock indices can explain the daily future movements of the New York Mercantile Exchange (NYMEX) futures prices, whereas these prices can explain the movements of independent companies engaged in exploration, refining, and marketing. The spillover analysis of oil volatility transmission suggests that the oil futures market has a matching or echoing volatility effect on the stocks of some oil sectors and a volatility-dampening effect on the stocks of others. The policy implication is that, during times of high oil volatility, traders should choose the S&P oil sector stocks that match their tolerance for volatility and use the right financial derivative to hedge against or profit from this volatility. The day effect for volatility transmission suggests that Friday has a calming effect on the volatility of oil stocks in general. The effect for Monday is not significant.     

The effect of oil prices on stock prices: fresh evidence from asymmetric causality tests

This article investigates the causal impact of oil prices on stock prices in each G7 market as well as in the world market. An asymmetric causality test developed by Hatemi-J is used for this purpose. Since the underlying data appears to be non-normal with time-varying volatility, we use bootstrap simulations with leverage adjustments in order to produce more reliable critical values than the asymptotic ones. Based on symmetric causality tests, we find no causal effect of oil prices on the stock prices of the world market or any of the G7 countries. However, when we apply an asymmetric causality test, we find that increasing oil prices cause stock prices to rise in the world, the U.S. and Japan while decreasing oil prices cause stock prices to fall in Germany. This may imply that the world, the U.S. and Japanese stock markets consider increases in oil prices as an indicator of good news as this may mean that there is an increase in oil demand due to an expected growth in the economy while the German stock market treats decreasing oil prices as a signal of an expected contraction in the economy.     

The dark side of the black gold shock onto Europe: One stock's joy is another stock's sorrow

This paper examines the impact of the current oil prices fall on Europe. We estimate a Bayesian shrinkage VAR model and analyse the impulse response functions to investigate the reaction of European stock markets to the current oil prices collapse. Using data covering the March 2002 to May 2014 period, our main result is that European stock markets are negatively and significantly affected by the crude oil shock. We prove that this result is robust to reasonable changes in the Bayesian shrinkage VAR model of the variables order and inclusion of additional variables. The findings shed light that common features exist among the European stock markets. Furthermore, the results highlight that the most exposed stock market is the French one, and that the least affected market is the Austrian one.