Hedging gas bills with weather derivatives

Natural gas company managers concerned with customer satisfaction attempt to minimize the occurrence of extreme bills. Previously, only price fluctuations were addressed with derivative instruments; exchange-traded weather derivatives present a means of hedging exposure to increases in quantity of gas demanded during colder than expected winter months. We model a natural gas company’s ability to adjust for consumer sensitivity and exposure to extreme bills with the use of an optimal mix of weather derivatives and gas pricing derivatives. We find consumer exposure to extreme bills is minimized when the utility uses pricing and weather derivatives.(JEL G11, L51)     

Can modeling the natural gas futures market as a threshold cointegrated system improve hedging and forecasting performance?

The calculation of the hedge ratio, and therefore the effectiveness of the hedge, is dependent upon the correct specification of the relationship between the futures and spot price. Likewise, a forecast of the future spot or futures price is dependent upon the model specification. This article investigates the appropriateness of using a threshold cointegrated model of the natural gas markets as the basis for hedging and forecasting. The findings suggest that the threshold model is more appropriate for longer contract length and that the threshold model does not offer much improvement in hedging or forecasting efficiency.     

Fractional cointegration and futures hedging

This article examines the performance of various hedge ratios estimated from different econometric models: The FIEC model is introduced as a new model for estimating the hedge ratio. Utilized in this study are NSA futures data, along with the ARFIMA-GARCH approach, the EC model, and the VAR model. Our analysis identifies the prevalence of a fractional cointegration relationship. The effects of incorporating such a relationship into futures hedging are investigated, as is the relative performance of various models with respect to different hedge horizons. Findings include: (i) Incorporation of conditional heteroskedasticity improves hedging performance; (ii) the hedge ratio of the EC model is consistently larger than that of the FIEC model, with the EC providing better post-sample hedging performance in the return–risk context; (iii) the EC hedging strategy (for longer hedge horizons of ten days or more) incorporating conditional heteroskedasticty is the dominant strategy; (iv) incorporating the fractional cointegration relationship does not improve the hedging performance over the EC model; (v) the conventional regression method provides the worst hedging outcomes for hedge horizons of five days or more. Whether these results (based on the NSA index) can be generalized to other cases is proposed as a topic for further research. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 457–474, 1999     

Coupling urban expansion models and hydrological models: How important are spatial patterns?

It is well known that urban expansion has a severe impact on the surface water balance by transforming vegetated covers into sealed surfaces. This transformation causes changing fluxes of evapotranspiration, surface runoff and groundwater recharge. In order to estimate the impact of land cover changes on the surface hydrology, hydrological models are often coupled with different types of land cover change models. It is, however, not clear to what extent spatially-explicit urban expansion scenarios provide an added value in comparison with non-spatial urban expansion models at different scale levels. The objective of this paper is to acquire a better insight in the importance of scale effects involved in the coupling of urban expansion scenarios and hydrological models. The relative importance of using different projections of both (i) quantity and (ii) spatial patterns of urban expansion was analysed at four different scale levels. The highly urbanised Flanders–Brussels region was taken as an example application. Twelve different urban expansion scenarios for 2025 and 2050 were developed and subsequently used as an input in a spatially-distributed water balance model. The results obtained suggest that at the level of the Flanders–Brussels region, an accurate estimation of the quantity of urban expansion should get priority over an accurate projection of the spatial patterns. However, the importance of using accurate projections of the spatial pattern of urban expansion increases systematically at local scale levels. A uniform strategy for coupling urban expansion models and hydrological models thus seems inappropriate. These findings are highly relevant for water management and spatial planning policymakers that typically operate at different administrative levels.     

An Empirical Study of OEM in Taiwan's Apparel Industry

Abstract

This paper has examined the effectiveness of the original equipment manufacturing (OEM) system in Taiwan's apparel industry from the perspective of international competitiveness. For that purpose, this study uses the following three definitions as the dependent variables in the empirical analyzes: namely, the ratio of apparel's export value to real gross domestic product (GDP); apparel's export value per unit of labor cost; and trade specialization index of Taiwan's apparel industry. The indices constructed for statistical analysis in this study illustrate clearly that international competitiveness of Taiwan's apparel industry has deteriorated from 1989 to 2005. In addition, in order to clarify those factors that have influenced the fall of international competitiveness, this study identifies three important factors—namely, wage, labor productivity, and the real effective exchange rate (REER)—and four structural and policy dummies, and then conducted multiple regressions to clarify their statistical relations with each of the dependent variable. The analytical findings show that the Taiwanese apparel industry has lost its attractiveness as an OEM production base because of the rise of wages and the fall of labor productivity. In addition, our findings show that the appreciation of the New Taiwan Dollar (NTD) in terms of REER does not influence the movement of international competitiveness in Taiwan's apparel industry.     

Determinants of the Confucius Institute establishment

This paper investigates the determinants of the Confucius Institute (CI) establishment. It is shown that FDI, trade, geographical distance, developing country, and English speaking are important factors whereas GDP and population are marginally significant. Overall, CIs are under-represented in a non-English, distant, less wealthy developing country that trades infrequently with China. The results suggest that the CI network will have greater global impacts when new or more CIs are established in non-English speaking developing countries. However, potential mutual benefits between China and these under-representing countries should be preconditions in order to attract CIs in the countries.     

Information asymmetry and accounting restatement: NYSE-AMEX and NASDAQ evidence

We examine the impact of accounting restatement announcement on firms’ value and information asymmetry for both auction market (NYSE-AMEX) and dealer market (NASDAQ) using a public sample of restatement announcements from 1997 to 2005. In both markets, we document economically and significantly negative mean cumulative abnormal returns around the announcement dates. The restatements attributed to auditors are associated with more negative returns than those attributed to management and the SEC. However, there is no significant difference between market reactions arising from the core and non-core restatements. We also find a significant increase in volume, number of transactions, average order size, volatility, and various measures of spreads after the restatement announcement indicating that restatement announcements diminish company prospects and contribute to increased uncertainty and information asymmetry. Finally, we find that the information asymmetry in the NASDAQ market around the event date is less pronounced than in the NYSE-AMEX market.