4 research outputs found
Diversification In Crude Oil And Other Commodities: A Comparative Analysis
An understanding of how volatilities of and correlations between commodity returns
change over time including their directions (positive or negative) and size (stronger or
weaker) is of crucial importance for both the domestic and international investors with a
view to diversifying their portfolios for hedging against unforeseen risks. This paper is an
humble attempt to add value to the existing literature by empirically testing the ‘timevarying’ and ‘scale dependent’ volatilities of and correlations of the sample commodities.
Particularly, by incorporating scale dependence, it is able to identify unique portfolio
diversification opportunities for different set of investors bearing different investment
horizons or holding periods. In order to address the research objectives, we have applied
the vector error-correction test and several recently introduced econometric techniques
such as the Maximum Overlap Discrete Wavelet Transform (MODWT), Continuous
Wavelet Transform (CWT) and Multivariate GARCH – Dynamic Conditional
Correlation. The data used in this paper is the daily data of seven commodities (crude oil,
gas, gold, silver, copper, soybean and corn) prices from 1 January 2007 until 31
December 2013
THE CO-MOVEMENT OF CHINA AND US STOCK INDICES: A PORTFOLIO DIVERSIFICATION ANALYSIS
The aim of this article is to find diversification opportunities by examining the time-varying and time-scale-based volatility and
correlation of the US and Chinese stock market indices with crude oil, gold and Bitcoin price returns, as well as the exchange rate of
the Chinese Yuan Renminbi against the US Dollar (CNY/USD) using a vector error correction model (VECM), namely, maximum
overlap discrete wavelet transformation (MODWT). Furthermore, individual and institutional investors may also reduce the risk of their
investment portfolio by investing in commodities and stock markets from countries with a negative or substantially low correlation. Our VECM result shows that Bitcoin, crude oil and CNY/USD lead the other variables under consideration, indicating that changes in the prices of Bitcoin, crude oil and CNY/USD affect the US and Chinese stock market indices, as well as gold. Our research utilising the
MODWT technique shows that Bitcoin leads crude oil at almost all levels, indicating that crude oil prices will respond to Bitcoin
price movement in the long and medium term. However, investors may be deterred from using Bitcoin as a diversification tool due to
its extreme volatility. The research also indicates that diversification with gold may help US investors. However, the continuous wavelet
transformation finding shows that the diversification benefit effects will persist for a holding period of little more than 64 days. Our study results tend to emphasise the significance of using reasonably modern methods to identify diversification possibilities for investors with diverse investment horizons or holding stocks for various periods
Risk-taking behavior and capital adequacy in a mixed banking system: new evidence from Malaysia using dynamic OLS and two-step dynamic system GMM estimators
This study is the first attempt to investigate the relationship between the level of risky assets
and capital level in a mixed Malaysian banking system covering 83 months starting December 2006. The
results of dynamic ordinary least squares indicate positive relationship between capital ratio (CAR) and
risk-weighted asset ratio (RWA) in the long run. Furthermore, the causality analysis based on panel VECM 15
and two-step dynamic system generalized method of moments indicates unidirectional causality from CAR
to RWA. Our results further suggest that higher capital growth and capital buffer provide an extra cushion
for the Malaysian banks to pursue relatively riskier financial activities, and the nature of risk-taking
behavior of Islamic banks follows that of the conventional banks