Hedging U.S. metals & mining Industry\u27s credit risk with industrial and precious metals

© 2019 This study examines the conditional correlation and the resulting optimal hedge ratios between the Credit Default Swap (CDS) spreads of the U.S. metal and mining industries, and the prices of copper, platinum, silver and gold using the daily date from December 14, 2007 to August 18, 2018. It compares volatility and conditional correlation of the CDSs and the metal prices by employing multivariate GARCH family models which capture distinct characteristics of financial time series. It utilizes rolling window estimation techniques and constructs the one-step-ahead out-of-sample forecasts for the dynamic conditional correlations and thereafter the optimal hedge ratios. In general, our results show that copper provides the best possible hedge for dealing with the U.S. metals and mining industries’ credit risks. Our results are robust under alternate model specifications, choice of model refits and distributional assumptions

The European Financial System in Limelight

Efficient use of resources depends on better allocation through financial systems. Development of financial systems can be measured through the performance of banks, financial markets and insurance companies. This paper identifies several key attributes to measure the level of financial development in Europe using data from 1990 to 2011. First, an index is constructed by employing the method of Principal Component Analysis to measure the strength of financial systems in European countries. Second, based on relative raking a comparison is made for better interpretation of results in European countries. The top five countries include Switzerland, United Kingdom, Netherlands, Spain and Germany. The results of this study can be helpful to assess the relative strength of European economies and frame future policies to promote efficiency of financial systems

Does Shariah compliance make interest rate sensitivity of Islamic equities lower? An industry level analysis under different market states

© 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group. This paper examines the sensitivity of the Dow Jones Islamic market index and its corresponding industry equity indices to changes in the level, slope and curvature of the U.S. term structure of interest rates over the period 1996–2015 using the quantile regression approach. The empirical results reveal that the Islamic stock market has a considerable negative exposure to interest rate risk, although a declining time pattern of interest rate sensitivity is observed. The unexpected changes in the level factor of the U.S. yield curve, closely linked to long-term interest rates, are identified as the most important interest rate factor in explaining the variability of Islamic equity returns. Furthermore, the interest rate exposure tends to be stronger during extreme bearish conditions in the stock market, possibly due to the greater pessimism and risk aversion under these market circumstances. It is also shown that Islamic equities are not different from their mainstream counterparts in terms of interest rate sensitivity, indicating that the Islamic stock market does not provide a cushion against interest rate risk

Relationship between financial inclusion and carbon emissions: International evidence

The nexus between financial inclusion and carbon emissions is becoming an increasingly important topic, given the augmented awareness of the negative impacts of climate change and carbon emissions on the environment and human health. In this study, we examine the impact of financial inclusion on carbon emissions using the STIRPAT framework for 102 countries from 2004 to 2020. We measure financial inclusion as a composite index, using principal component analysis (PCA) from five financial inclusion proxies. Our robust panel regression estimations suggest an N-Shaped relationship between financial inclusion and carbon emissions. The N-shaped Environmental Kuznets Curve (EKC) implies that the impact of financial inclusion on carbon emission is nonlinear and changes from an inverted U-shaped to a U-shaped. This finding is strong in developing countries and weak in advanced countries. It is also robust across our two normalized measures of financial inclusion as well as across different estimation techniques. These findings suggest adapting a universal environmental strategy that enhances financial inclusion through strong and accessible financial systems, particularly for low-income countries. Our results further suggest that government authorities and policymakers need to develop well-directed and inclusive financial policies that consider the varying levels of governance, regulations, and income across countries

Sensitivity Analysis of CAPM Estimates: Data Frequency and Time Frame

This study is based on positivism research philosophy and utilizes deductive approach using quantitative data analysis of 117 firms listed at KSE-100 Index from 2005 to 2012. Objective of study is to analyze the predictability of Capital Asset Pricing Model (CAPM) under different data frequencies, time frames and indices. It is found that there is no difference between value weighted and equally weighted index. Six months of daily data, as opposed to recommended five years monthly data provides the best estimates. However, the performance of model can be regarded as poor with 5.3% power to explain difference in returns

Nexus between U.S Energy Sources and Economic Activity: Time-Frequency and Bootstrap Rolling Window Causality Analysis

This paper explores the relationship between U.S economic activity and renewable energy sources namely hydroelectric power, geothermal energy, wood energy, waste energy, biofuel, biomass energy, and total renewable energy. Monthly data for the period January 1981 to March 2015 is used to depict the comovements between the variables through Wavelet Squared Coherence (WTC) and Multiple Wavelet Coherence (MWCC) approaches. Maximal overlap wavelet correlation and cross-correlation measures, analogous to WTC and MWCC, show strong positive comovement in long-run. The causal linkage between economic activity and renewable energy sources is examined through bootstrap rolling window causality. The analysis reveals the significant reciprocal effects between the economic activity and energy use during the periods of extreme events. Overall, findings indicate that renewable energy sources play an important role in stimulating economic activity. This shows that present study has important implications for US energy policy authorities

Is Globalization Detrimental to CO2 Emissions in Japan? New Threshold Analysis

Using annual data 1970-2014, this paper examines the effects of globalization on CO2 emissions in Japan while accounting for economic growth and energy consumption as potential determinants of carbon emissions. The structural breaks and asymmetries arising due to policy shifts require attention and hence an asymmetric threshold version of the ARDL model is utilized. The results show the presence of threshold asymmetric cointegration between the variables. The threshold-based positive and negative shocks arising in globalization increase carbon emissions, while the impact of the latter is more profound. Energy consumption (economic growth) also has a significant positive effect on carbon emissions. Globalization, economic growth and energy consumption significantly increase carbon emissions in the short run. We suggest that policy makers in Japan should consider globalization and energy consumption as policy tools while formulating their policies towards protecting sustainable environmental quality in the long run. Otherwise, the Japanese economy may continue to face environmental consequences such as undesirable climate change and massive warming at the micro and macro levels as a result of potential shocks arising from globalization and energy consumption

IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF NON-FINANCIAL LISTED COMPANIES IN PAKISTAN

This study examines the relationship between capital structure andfinancial performance using a broad sample of 213 non-financial firmslisted on the Karachi Stock Exchange (KSE) over the period 1999-2015. The relationship between financial performance and capitalstructure is estimated using fixed and random effect models. Sectorwisecomparison shows that for the majority of sectors, higher shortandlong-term debt has a significant negative impact on financialperformance; however, magnitude of this effect varies across industries.The results suggest that in order to improve performance, companies’management should decrease their reliance on debt finance

Sensitivity Analysis of CAPM Estimates: Data Frequency and Time Frame

This study is based on positivism research philosophy and utilizes deductive approach using quantitative data analysis of 117 firms listed at KSE-100 Index from 2005 to 2012. Objective of study is to analyze the predictability of Capital Asset Pricing Model (CAPM) under different data frequencies, time frames and indices. It is found that there is no difference between value weighted and equally weighted index. Six months of daily data, as opposed to recommended five years monthly data provides the best estimates. However, the performance of model can be regarded as poor with 5.3% power to explain difference in returns