134 research outputs found

    Oil prices and stock returns : nonlinear links across sectors

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    We present evidence of an asymmetric relationship between oil prices and stock returns. The two regime multivariate Markov switching vector autoregressive (MSVAR) model allow us to capture the state shifts in the relationship between regional stock markets and sectors. Results suggest that oil price risk is significantly priced in the sample used. The impact is asymmetric with respect to market phases, and regimes have been associated with world economic, social and political events. Our study also suggests asymmetric responses of sector stock returns to oil price changes and different transmission impacts depending on the sector analyzed. There is a high causality from oil to sectors like Industrials and Oil & Gas. Companies inside the Utilities sector were more able to hedge against oil price increases between 2007 and 2012. Historical crisis events between 1992–1998 and 2003–2007 do not seem to have affected the relationship between oil and sector stock returns, given the higher probability of remaining smoother. For all sectors there seems to be a turn back to stability from 2012 onwards. Finally, investors gain more through portfolio diversification benefits built across, rather than within sectors.info:eu-repo/semantics/publishedVersio

    Gold as a Tool for Hedging Financial Risks

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    The article discusses gold as a protective asset, which claims to be a high-efficiency tool for hedging financial risks. In the introductory part the general characteristics of hedging as a method of full or partial risk elimination is given, and the main known types of risk hedging typical for a financial asset portfolio holder are considered. Further, dynamics of the world prices for gold is analyzed in a historical retrospective, whereby the conclusion is drawn on a tendency of this asset to grow during the periods of financial instability, and also if new financial assets appear. In the final part of the article the assessment of gold as a tool for hedging financial risks is given

    Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries

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    In this study, we investigate the financial and monetary policy responses to oil price shocks using a Structural VAR framework. We distinguish between net oil-importing and net oil-exporting countries. Since the 80s, a significant number of empirical studies have been published investigating the effect of oil prices on macroeconomic and financial variables. Most of these studies though, do not make a distinction between oil-importing and oil-exporting economies. Overall, our results indicate that the level of inflation in both net oil-exporting and net oil-importing countries is significantly affected by oil price innovations. Furthermore, we find that the response of interest rates to an oil price shock depends heavily on the monetary policy regime of each country. Finally, stock markets operating in net oil-importing countries exhibit a negative response to increased oil prices. The reverse is true for the stock market of the net oil-exporting countries. We find evidence that the magnitude of stock market responses to oil price shocks is higher for the newly established and/or less liquid stock market

    Can gold be used as a hedge against the risks of Sharia-compliant securities? Application for Islamic portfolio management

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    In this paper, we investigate whether gold hedges Sharia-compliant stocks and Sukuk during the period from September 2005 to October 2017. The inference is taken by using both the DCC-GARCH model and the wavelet coherence analysis. On the whole, our finding suggests that gold is not effective in hedging the fluctuations of Sharia-compliant securities. However, we find that combining gold with stocks (and Sukuk) is useful in diversification and portfolio optimization. These results imply that, while gold is an excellent hedge for plain vanilla securities, it is not for Islamic exposures. This is important in light of the increasing amount of assets that are managed according to Islamic screening

    Synchronization and nonlinear interdependence of short-term interest rates:

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    In this paper we investigate the synchronization and nonlinear adjustment process of short-term interest rates for France, the US and the UK using the bi-directional feedback measures proposed by Geweke (1982).and appropriate smooth transition error-correction models (STECM). We find strong evidence of continual increases in bilateral synchronization of these interest rates from 2005 to 2009 as well as of their lead-lag causal interactions with a slight dominance of the US rate. Consistently, exogenous shifts in the US rate are found to lead those in France and the UK within a very short time spans from one to two days. Results from nonlinear modeling indicate that short-term interest rates converge towards a common equilibrium in the long-run in a nonlinear manner in that their time dynamics exhibit regime-switching behavior

    Nonlinear Shift Contagion Modeling: Further Evidence from High Frequency Stock Data

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    This paper investigates the contagion hypothesis for the French and German stock markets using a combination of a Switching Transition Error Correction model and a Generalized Autoregressive Conditional Heteroscedasticity (STEC-GARCH) model. The main advantage of this double nonlinear error-correction modeling is to specify a time-varying process that apprehends the dynamic evolution of the contagion and reproduces its speed, its extreme regimes as well as its intermediate states, by taking into account the possible linkages between these markets. More importantly, these techniques capture two kinds of nonlinearity: nonlinearity in the mean and nonlinearity in the variance. Applying this modeling on the intraday data of the CAC40 and DAX100 indices over the pre-crisis period (2004-2006) and the post-crisis period (2007-2009), our results indicate significant shift contagion between studied markets. There is also evidence of nonlinear time-varying error correcting-mechanism toward the long-run equilibrium

    Nonlinear Shift Contagion Modeling: Further Evidence from High Frequency Stock Data

    No full text
    This paper investigates the contagion hypothesis for the French and German stock markets using a combination of a Switching Transition Error Correction model and a Generalized Autoregressive Conditional Heteroscedasticity (STEC-GARCH) model. The main advantage of this double nonlinear error-correction modeling is to specify a time-varying process that apprehends the dynamic evolution of the contagion and reproduces its speed, its extreme regimes as well as its intermediate states, by taking into account the possible linkages between these markets. More importantly, these techniques capture two kinds of nonlinearity: nonlinearity in the mean and nonlinearity in the variance. Applying this modeling on the intraday data of the CAC40 and DAX100 indices over the pre-crisis period (2004-2006) and the post-crisis period (2007-2009), our results indicate significant shift contagion between studied markets. There is also evidence of nonlinear time-varying error correcting-mechanism toward the long-run equilibrium
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