Revisiting the Link between Political and Financial Crises in Africa

There is an important information deficit on political and financial risks in Africa. This paper fills this gap by compiling a unique database of financial (sovereign, banking, currency, expropriation) and political crises (regime changes, ethnic and revolutionary wars, genocides, armed conflicts) covering 53 African countries between 1965 and 2008. We employ a new methodological framework to disentangle cross-crisis from temporal contagion effects. This allows us to extend to Africa a number of insights from the literature on financial crises (e.g., the mutual contagion effects between banking and currency meltdowns). Importantly, and critically for a study devoted to Africa, political upheavals are of modest relevance to predict financial crises. These results may be reconciled with previous literature given our original focus on Africa and our event-based approach of financial and political risks

Time-consistency in managing a commodity portfolio: a dynamic risk

We consider the problem of the manager of a storable commodity (e.g. hydro, coal) portfolio facing demand risk while having access to storage facilities and illiquid spot and forward markets. In this setting, we emphasise that a dynamically consistent way of managing risk over time must be introduced. In particular, we demonstrate the temporal inconsistency of static risk objectives based on final wealth and advocate the use of a new class of recursive risk measures such as those suggested by Epstein et al. (1989) and Wang (2000) for portfolio optimisation and valuation. These types of risk measures not only provide time-consistent decision planning but allow the portfolio manager to control independently the occurrence of cash-flows across time and across random states of nature. We illustrate the discussion in an empirical section where the trade-off between final wealth risk and bankruptcy risk at an intermediate date is analysed and the synergy between the physical assets composing a commodity portfolio is assessed

Forward curves, scarcity and price volatility in oil and natural gas markets

The role of inventory in explaining the shape of the forward curve and spot price volatility in commodity markets is central in the theory of storage developed by Kaldor [Kaldor, N. (1939) "Speculation and Economic Stability", The Review of Economic Studies 7, 1–27] and Working [Working, H. (1949) “The theory of the price of storage”, American Economic Review, 39, 1254–1262] and has since been documented in a vast body of financial literature, including the reference paper by Fama and French [Fama, E.F. and K.R. French (1987) “Commodity futures prices: some evidence on forecast power, premiums and the theory of storage”, Journal of Business 60, 55–73] on metals. The goal of this paper is twofold: i) validate in the case of oil and natural gas the use of the slope of the forward curve as a proxy for inventory (the slope being defined in a way that filters out seasonality); ii) analyze directly for these two major commodities the relationship between inventory and price volatility. In agreement with the theory of storage, we find that: i) the negative correlation between price volatility and inventory is globally significant for crude oil; ii) this negative correlation prevails only during those periods of scarcity when the inventory is below the historical average and increases importantly during the winter periods for natural gas. Our results are illustrated by the analysis of a 15 year-database of US oil and natural gas prices and inventory

Revisiting the Link between Political and Financial Crises in Africa

There is an important information deficit on political and financial risks in Africa. This paper fills this gap by compiling a unique database of financial (sovereign, banking, currency, expropriation) and political crises (regime changes, ethnic and revolutionary wars, genocides, armed conflicts) covering 53 African countries between 1965 and 2008. We employ a new methodological framework to disentangle cross-crisis from temporal contagion effects. This allows us to extend to Africa a number of insights from the literature on financial crises (e.g., the mutual contagion effects between banking and currency meltdowns). Importantly, and critically for a study devoted to Africa, political upheavals are of modest relevance to predict financial crises. These results may be reconciled with previous literature given our original focus on Africa and our event-based approach of financial and political risks

Physical Analyses of E. coli Heteroduplex Recombination Products In Vivo: On the Prevalence of 5′ and 3′ Patches

BACKGROUND: Homologous recombination in Escherichia coli creates patches (non-crossovers) or splices (half crossovers), each of which may have associated heteroduplex DNA. Heteroduplex patches have recombinant DNA in one strand of the duplex, with parental flanking markers. Which DNA strand is exchanged in heteroduplex patches reflects the molecular mechanism of recombination. Several models for the mechanism of E. coli RecBCD-mediated recombinational double-strand-end (DSE) repair specify that only the 3'-ending strand invades the homologous DNA, forming heteroduplex in that strand. There is, however, in vivo evidence that patches are found in both strands. METHODOLOGY/PRINCIPLE FINDINGS: This paper re-examines heteroduplex-patch-strand polarity using phage lambda and the lambdadv plasmid as DNA substrates recombined via the E. coli RecBCD system in vivo. These DNAs are mutant for lambda recombination functions, including orf and rap, which were functional in previous studies. Heteroduplexes are isolated, separated on polyacrylamide gels, and quantified using Southern blots for heteroduplex analysis. This method reveals that heteroduplexes are still found in either 5' or 3' DNA strands in approximately equal amounts, even in the absence of orf and rap. Also observed is an independence of the RuvC Holliday-junction endonuclease on patch formation, and a slight but statistically significant alteration of patch polarity by recD mutation. CONCLUSIONS/SIGNIFICANCE: These results indicate that orf and rap did not contribute to the presence of patches, and imply that patches occurring in both DNA strands reflects the molecular mechanism of recombination in E. coli. Most importantly, the lack of a requirement for RuvC implies that endonucleolytic resolution of Holliday junctions is not necessary for heteroduplex-patch formation, contrary to predictions of all of the major previous models. This implies that patches are not an alternative resolution of the same intermediate that produces splices, and do not bear on models for splice formation. We consider two mechanisms that use DNA replication instead of endonucleolytic resolution for formation of heteroduplex patches in either DNA strand: synthesis-dependent-strand annealing and a strand-assimilation mechanism

Modeling global and local dependence in a pair of commodity forward curves with an application to the US natural gas and heating oil markets

The goal of this paper is to present a model for the joint evolution of correlated commodity forward curves. Each forward curve is directed by two state variables, namely slope and level, and the model is meant to capture both the local and global dependence structures between slopes and levels. Our framework can be interpreted as an extension of the concept of cointegration to forward curves. The model is applied to a US database of heating oil and natural gas futures prices over the period February 2000-February 2009. We find the long-run slope and level relationships between natural gas and heating oil markets, analyze the lead and lag properties between the two energy commodities, the volatilities and correlations between their daily co-movements and evaluate the robustness of these observations to the turmoil experienced by energy markets since 2003.Commodity forward curves Cross-commodity portfolios Heating oil Natural gas Cointegration

Time-consistency in managing a commodity portfolio: A dynamic risk measure approach

We address the problem of managing a storable commodity portfolio, that includes physical assets and positions in spot and forward markets. The vast amount of capital involved in the acquisition of a power plant or storage facility implies that the financing period stretches over a period of several quarters or years. Hence, an intertemporally consistent way of optimizing the portfolio over the planning horizon is required. We demonstrate the temporal inconsistency of static risk objectives based on final wealth and advocate the validity in our setting of a new class of recursive risk measures introduced by Epstein and Zin [Epstein, G., Zin, S., 1989. Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework. Econometrica, 57 (4) 937-969] and Wang [Wang, T., 2000. A class of dynamic risk measures University of British Columbia]. These risk measures provide important insights on the trade-offs between date-specific risks (i.e., losses occurring at a point in time) and time-duration risks represented by the pair (return, risk) over a planning horizon; in a number of situations, they dramatically improve the efficiency of static risk objectives, as exhibited in numerical examples.Commodity portfolio Dynamic risk measures Time-consistency Temporal elasticity of substitution

Forward curves, scarcity and price volatility in oil and natural gas markets

The role of inventory in explaining the shape of the forward curve and spot price volatility in commodity markets is central in the theory of storage developed by Kaldor [Kaldor, N. (1939) "Speculation and Economic Stability", The Review of Economic Studies 7, 1-27] and Working [Working, H. (1949) "The theory of the price of storage", American Economic Review, 39, 1254-1262] and has since been documented in a vast body of financial literature, including the reference paper by Fama and French [Fama, E.F. and K.R. French (1987) "Commodity futures prices: some evidence on forecast power, premiums and the theory of storage", Journal of Business 60, 55-73] on metals. The goal of this paper is twofold: i) validate in the case of oil and natural gas the use of the slope of the forward curve as a proxy for inventory (the slope being defined in a way that filters out seasonality); ii) analyze directly for these two major commodities the relationship between inventory and price volatility. In agreement with the theory of storage, we find that: i) the negative correlation between price volatility and inventory is globally significant for crude oil; ii) this negative correlation prevails only during those periods of scarcity when the inventory is below the historical average and increases importantly during the winter periods for natural gas. Our results are illustrated by the analysis of a 15 year-database of US oil and natural gas prices and inventory.Forward curves Natural gas Crude oil Scarcity Energy price volatility Convenience yield

Does Analyst Coverage Impede Long-Term Investments? Evidence from Health and Safety Programs

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