Using Cyclical Components to Improve the Forecasts of the Stock Market and Macroeconomic Variables

Economic variables such as stock market indices, interest rates, and national output measures contain cyclical components. Forecasting methods excluding these cyclical components yield inaccurate out-of-sample forecasts. Accordingly, a three-stage procedure is developed to estimate a vector autoregression (VAR) with cyclical components. A Monte Carlo simulation shows the procedure estimates the parameters accurately. Subsequently, a VAR with cyclical components improves the root-mean-square error of out-of-sample forecasts by 50% for a stock market model with macroeconomic variables

Market penetration of biodiesel

This research examines in detail the technology and economics of substituting biodiesel for diesel #2. This endeavor examines three areas. First, the benefits of biodiesel are examined, and the technical problems of large-scale implementation. Second, the biodiesel production possibilities are examined for soybean oil, corn oil, tallow, and yellow grease, which are the largest sources of feedstocks for the United States. Examining in detail the production possibilities allows to identity the extent of technological change, production costs, byproducts, and greenhouse gas (GHG) emissions. Finally, a U.S. agricultural model, FASOMGHG was used to predict market penetration of biodiesel, given technological progress, variety of technologies and feedstocks, market interactions, energy prices, and carbon dioxide equivalent prices. FASOMGHG has several interesting results. First, diesel fuel prices have an expansionary impact on the biodiesel industry. The higher the diesel fuel prices, the more biodiesel is produced. However, given the most favorable circumstances, the maximum biodiesel market penetration is 9% in 2030 with a wholesale diesel price of $4 per gallon. Second, the two dominant sources of biodiesel are from corn and soybeans. Sources like tallow and yellow grease are more limited, because they are byproducts of other industries. Third, GHG prices have an expansionary impact on the biodiesel prices, because biodiesel is quite GHG efficient. Finally, U.S. government subsidies on biofuels have an expansionary impact on biodiesel production, and increase market penetration at least an additional 3%.Agricultural sector model Alternative energy Biodiesel Emission trading Carbon equivalent price

The 2008 global financial crisis and COVID-19 pandemic: How safe are the safe haven assets?

We compare the performance of safe-haven assets during the Global Financial Crisis (GFC) and COVID-19 pandemic. First, regarding the GFC, we find, intermediate (weak) safe haven evidence for US dollar, Swiss franc and T-bonds (Gold, Silver and T-bills). Second, with regard to COVID, we find gold is very risky in some settings, while silver has become extremely risky. Collectively, our findings suggest that the character of safe-haven assets has changed between the crises. Therefore, investors should exercise extreme care when investing in potential safe-haven assets during times of market stress

Market penetration of ethanol

This research examines in detail the technology and economics of substituting ethanol for gasoline. This endeavor examines three issues. First, the benefits of ethanol/gasoline blends are examined, and then the technical problems of large-scale implementation of ethanol. Second, ethanol production possibilities are examined in detail from a variety of feedstocks and technologies. The feedstocks are the starch/sugar crops and crop residues, while the technologies are corn wet mill, dry grind, and lignocellulosic fermentation. Examining in detail the production possibilities allows the researchers to identity the extent of technological change, production costs, byproducts, and GHG emissions. Finally, a U.S. agricultural model, FASOMGHG, is updated which predicts the market penetration of ethanol given technological progress, variety of technologies and feedstocks, market interactions, energy prices, and GHG prices. FASOMGHG has several interesting results. First, gasoline prices have a small expansionary impact on the U.S. ethanol industry. Both agricultural producers' income and cost both increase with higher energy prices. If wholesale gasoline is $4 per gallon, the predicted ethanol market penetration attains 53% of U.S. gasoline consumption in 2030. Second, the corn wet mill remains an important industry for ethanol production, because this industry also produces corn oil, which could be converted to biodiesel. Third, GHG prices expand the ethanol industry. However, the GHG price expands the corn wet mill, but has an ambiguous impact on lignocellulosic ethanol. Feedstocks for lignocellulosic fermentation can also be burned with coal to generate electricity. Both industries are quite GHG efficient. Finally, U.S. government subsidies on biofuels have an expansionary impact on ethanol production, but may only increase market penetration by an additional 1% in 2030, which is approximately 6 billion gallons.Agricultural sector model Alternative energy Ethanol Emission trading Carbon-equivalent price

Bioelectricity in Malaysia: economic feasibility, environmental and deforestation implications

We investigate the economic feasibility of bioelectricity production from biomass in Malaysia and its impact on greenhouse gas (GHG) emissions and storage, agricultural prices, agricultural employment and deforestation. For this purpose, we develop a partial equilibrium model that projects agricultural prices, production, imports, exports, domestic consumption and land use in 5-year increments between 2015 and 2065. Our results show that by 2030 biomass-generated electricity can supply 36.5 per cent of the electricity generated in Malaysia, 16 times more than the 2016 electricity supply from biomass. Increased bioelectricity production from biomass will significantly reduce GHG emissions and will help Malaysia meet its commitment in the Paris Agreement to mitigate GHG emission by 45 per cent before 2030. Our modelling shows that biomass-generated electricity creates a derived demand for waste biomass that expands the area of oil palm plantations. The expansion lowers agricultural prices, boosts agricultural employment and leads to some deforestation as landowners clear rainforest to plant oil palm trees. Nonetheless, the deforestation does not increase GHG emissions since GHG gains from bioelectricity significantly exceed GHG losses from deforestation

Combustion performance and exhaust emission analysis of spent bleaching earth (SBE) oil as burner's fuel

Spent bleaching earth (SBE) is a type of hazardous solid waste generated during the bleaching process of crude palm oil (CPO). Despite years of studies being done on how best to manage the waste, the issue is still largely unsolved and has created massive economic and environmental problems. SBE is generally disposed by dumping onto landfills because it is by far the cheapest method. However, due to the high quantities of water insoluble substance; mostly free fatty acids (FFA) and peroxide as well as heavy metals, the waste decomposes very slowly and thus becoming a serious hazard to the environment that can cause water and soil pollution as well as fire risk. Recent breakthrough in studies have allowed significant amount of residual oil contained in SBE to be extracted and this has opened up new avenues to tackle the SBE dumping issue. By extracting the oil, it can be used as an alternative fuel in lieu of fossil fuels in power generation. This will inadvertently create a value added product that can mitigate the environmental hazards of SBE dumping but also reduce the cost of handling and disposing the waste. However, at present the research on SBE is limited to the advancement of residual oil extraction technique. There is no research that focus on the evaluation of SBE oil as a substitute to fossil fuels. As such this paper will evaluate and determine the combustion performance and exhaust emission of SBE oil as a source of fuel for burner. The combustion performance in terms of CO2, CO, NOx and flame temperature will be compared with neat diesel under the same conditions. SBE oil shows some promising combustion performance, since it produces no SOx due to the absence of Sulphur, emits lower CO2 than diesel, while releases higher CO than diesel. The higher amount of CO produced by SBE oil can be largely attributed by the high viscosity of the oil. The high viscosity and density of SBE oil greatly affects the fuel spray which in turns causing a poor atomization and combustion hence the high amount of CO emission

Searching for rational bubble footprints in the Singaporean and Indonesian stock markets

We re-examine the presence of rational speculative bubbles in the Singaporean and Indonesian stock markets in light of contradictory results in the literature. We employ a mix of descriptive statistics, explosiveness tests and duration dependence tests for an expanded dataset from 1970 to 2013 that covers at least two suspected bubble episodes - the 1997 Asian Financial Crisis (AFC) and the Global Financial Crisis (GFC). We find bubble footprints in Singapore and Indonesia using descriptive statistics and explosiveness tests. However, we find no evidence of rational bubbles in Singapore using the duration dependence test. On the other hand, in Indonesia we find evidence of rational bubbles in weekly but not in monthly data. Our results indicate that the duration dependence test could be sensitive to data frequency suggesting that the duration dependence test results are not always conclusive and that it should be used in conjunction with other tests

The potential and environmental ramifications of palm biodiesel: Evidence from Malaysia

© 2018 Malaysia finds itself in a unique position. The large flourishing palm oil industry could produce enough biodiesel to completely offset Malaysia's entire diesel consumption. Consequently, we employ a dynamic, partial equilibrium model of the Malaysian agricultural sector to predict whether palm biodiesel can offset diesel fuel. The model indicates palm biodiesel cannot compete with diesel's price because of the high cost of palm oil. Nevertheless, the government could subsidize biodiesel production at Malaysian Ringgit (RM) 1.09 per liter (or United States Dollar 0.28/liter) since biodiesel could help the government achieves its greenhouse gas (GHG) emission targets in the Paris Agreement. Furthermore, the government should implement two new regulations to boost the GHG efficiency of its agriculture. First, the palm oil mills should treat their palm oil mill effluents (POME) because POMEs emit methane, a potent GHG gas. Second, the government should prevent deforestation. The destruction of rainforests reduces the carbon storage because oil palm trees store half the carbon as pristine rainforests per hectare. Finally, palm biodiesel could lead to greater agricultural employment but induce higher agricultural prices, loss of export revenue, and rising imports

Switching-regime regression for modeling and predicting a stock market return

It has been observed that certain economic and financial variables commonly exhibit switching behavior depending on their magnitude. This phenomenon in general cannot be naturally captured by the linear regression (LR), which assumes a linear relationship between the dependent and explanatory variables. To decipher investor behavior more appropriately by accounting for this observation, a switching-regime regression (SRR) is proposed and applied to the S&P 500 market return with respect to seven explanatory variables. It is shown that, compared with LR, the new regression results in a significantly improved adjusted R2, increasing from less than 4 % to over 50 %. In addition, SRR yields better out-of-sample forecasting performance, besides that the fitted values from the new regression even resemble the dip during the 2008 financial crisis, while those from LR do not. The study thus indicates that the switching-regime regression improves significantly the statistical properties including the goodness of fit as well as conforms more to investor behavior theory