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on Financial Markets |
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Issue of 2016‒07‒23
three papers chosen by |
| By: | Chang, C-L.; McAleer, M.J.; Tian, J. |
| Abstract: | The primary purpose of the paper is to analyze the conditional correlations, conditional covariances, and co-volatility spillovers between international crude oil and associated financial markets. The paper investigates co-volatility spillovers (namely, the delayed effect of a returns shock in one physical or financial asset on the subsequent volatility or co-volatility in another physical or financial asset) between the oil and financial markets. The oil industry has four major regions, namely North Sea, USA, Middle East, and South-East Asia. Associated with these regions are two major financial centers, namely UK and USA. For these reasons, the data to be used are the returns on alternative crude oil markets, returns on crude oil derivatives, specifically futures, and stock index returns in UK and USA. The paper will also analyze the Chinese financial markets, where the data are more recent. The empirical analysis will be based on the diagonal BEKK model, from which the conditional covariances will be used for testing co-volatility spillovers, and policy recommendations. Based on these results, dynamic hedging strategies will be suggested to analyze market fluctuations in crude oil prices and associated financial markets. |
| Keywords: | Co-volatility spillovers, crude oil, financial markets, spot, futures, diagonal BEKK, optimal dynamic hedging |
| JEL: | C58 D53 G13 G31 O13 |
| Date: | 2016–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:93117&r=fmk |
| By: | Hong-Bae Kim (Dongseo University) |
| Abstract: | This paper investigated the volatility spillover effects between Islamic stock markets and Korean stock market using the AR-DCC-GARCH models. First, we found bi-directional volatility transmissions between the Islamic and Korean financial markets Second, we compared the correlation of KOSPI-DJIM portfolio and that of KOSPI-SHX portfolio. It shows the correlation of KOSPI-DJIM portfolio has stronger linkage than that of KOSPI-SHX portfolio. In the portfolio perspective, the S&P 500 Sharia stock Index(SHX) acts as a better hedge asset than DJIM against the risk of stock market. Last, The hedge ratio between two Islamic stock market and Korean stock market pairs is generally low, indicating that the Korean stock risk can be effectively hedged by taking a short position in the Islamic stock markets. In comparison with two pairs, the pair of KOSPI-SHX relatively shows a cheaper hedging cost than that of KOSP-DJIM pair. This evidence indicates that S&P 500 Sharia index serve more effective hedging role against the risk of Korean stock market. |
| Keywords: | Islamic market, hedge ratio, AR-DCC-GARCH model |
| JEL: | G11 G15 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:4006501&r=fmk |
| By: | Kiran Sharma; Shreyansh Shah; Anindya S. Chakrabarti; Anirban Chakraborti |
| Abstract: | In this article we review several techniques to extract information from stock market data. We discuss recurrence analysis of time series, decomposition of aggregate correlation matrices to study co-movements in financial data, stock level partial correlations with market indices, multidimensional scaling and minimum spanning tree. We apply these techniques to daily return time series from the Indian stock market. The analysis allows us to construct networks based on correlation matrices of individual stocks in one hand and on the other, we discuss dynamics of market indices. Thus both micro level and macro level dynamics can be analyzed using such tools. We use the multi-dimensional scaling methods to visualize the sectoral structure of the stock market, and analyze the comovements among the sectoral stocks. Finally, we construct a mesoscopic network based on sectoral indices. Minimum spanning tree technique is seen to be extremely useful in order to separate technologically related sectors and the mapping corresponds to actual production relationship to a reasonable extent. |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1607.05514&r=fmk |