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Article
Publication date: 2 November 2018

Tadahiro Nakajima

The purpose of this paper is twofold. First, the paper examines the risk transmission between crude oil and petroleum product prices of Japan’s oil futures market. Second…

Abstract

Purpose

The purpose of this paper is twofold. First, the paper examines the risk transmission between crude oil and petroleum product prices of Japan’s oil futures market. Second, it compares the performance of two tests for Granger causality using realized variance (RV) and the exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model.

Design/methodology/approach

The author measures the daily RV of crude oil, kerosene and gasoline futures listed on the Tokyo Commodity Exchange using high-frequency data, and he examines the Granger causality in variance between these variables using the vector autoregression model. Further, the author estimates the EGARCH model based on daily data and test for Granger causality in variance between commodity futures using Hong’s (2001) approach.

Findings

The results of the RV approach reveal that the hypothesis on the existence of a mutual volatility spillover between crude oil and petroleum product markets is accepted. However, the results of the conventional approach indicate that all the hypotheses on Granger causalities in variance are rejected. The methodology based on intraday high-frequency data exhibits higher power than the conventional approach based on daily data.

Originality/value

This is the first paper to investigate Japan’s oil market using RV. The authors conclude that the approach based on RV is universally adoptable when testing for Granger causality in variance.

Details

Studies in Economics and Finance, vol. 36 no. 2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 11 April 2021

Eray Gemici and Müslüm Polat

This study aims to examine the volatility spillovers between Bitcoin (BTC), Litecoin (LTC) and Ethereum (ETH) as they are related to structural breaks.

Abstract

Purpose

This study aims to examine the volatility spillovers between Bitcoin (BTC), Litecoin (LTC) and Ethereum (ETH) as they are related to structural breaks.

Design/methodology/approach

This study examines the daily period from August 7, 2015 to July 10, 2018 by conducting causality-in-mean and causality-in-variance tests among cryptocurrencies.

Findings

The findings showed that there was one-way causality-in-mean from BTC to LTC and ETH, but there was no causality-in-mean from LTC and ETH to BTC. On the other hand, considering the structural breaks included in the variance equations, the estimation results showed that there were short-term causality-in-variance from LTC to BTC and long-term causality-in-variance from BTC to LTC.

Originality/value

This study fills the gap by contributing in two ways. First, to the best of the authors’ knowledge, this is the first study that used the cross-correlation function (CCF) of causality to explore causality-in-variance among cryptocurrencies. Second, this study considers the structural breaks in variance in the return series.

Details

Studies in Economics and Finance, vol. 38 no. 4
Type: Research Article
ISSN: 1086-7376

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Book part
Publication date: 4 July 2019

Letife Özdemir and Serap Vurur

Capital markets thrive on information, and the information revolution has transformed these markets all over the world. Investors can now keep track of the movements of…

Abstract

Capital markets thrive on information, and the information revolution has transformed these markets all over the world. Investors can now keep track of the movements of capital markets in real-time and they react to the flow of information from around the world. One of the concerns of stock market investors is whether the markets operate efficiently, independently, and with sound fundamentals. However, real market movements tend to exhibit a link as is evident from recent market movements across the world.

The assessment of interdependence between stock markets is an important aspect of international portfolio management. The aim of this chapter is to examine the shock and volatility spillover between the Standard and Poor’s 500 (S&P500) index from the United States (US) Stock Exchange and the Istanbul Stock Exchange 100 (BIST100) index from the Stock Exchange Istanbul.

S&P500 index, which is the most important index representing US markets, and BIST100 index, which is the index representing the Turkish market, were used as variables in this study. In the analysis, the causality in variance test was applied to determine the volatility spillover between these two markets. Later, multivariate GARCH (MGARCH) models were used to measure the volatility spillover in the markets. VAR(1)-GARCH (1,1)-Diagonal BEKK model was applied to the daily data to determine the shock and volatility spillover in the markets.

As a result of the variance causality test, it was found that there is a bi-directional volatility spillover between S&P500 index and BIST100 index. When the return spillover between the markets is examined, a one-way spillover from the S&P500 index to the BIST100 index emerged. Diagonal BEKK model results show that each market is affected by its own news (unexpected shocks) and volatility. Furthermore, the volatility is persistent for both markets. These findings demonstrate that the US market and the Turkish market interact with each other.

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Book part
Publication date: 8 March 2011

Yushi Yoshida

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility…

Abstract

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility spillovers and time-varying correlation between the US and Asian stock markets. After pretesting volatility causality and constancy of correlation, we estimate an appropriate smooth-transition correlation VAR-GARCH model for each Asian stock market. First, the empirical evidence indicates stark differences in stock market linkages between the two crises. The volatility causality comes from the crises-originating country. Volatility in Asian stock markets Granger-caused volatility in the US market during the Asian crisis, whereas volatility in the US stock market Granger-caused volatility in Asian stock markets during the subprime crisis. Second, decreased correlations during the period of financial turmoil were observed, especially during the Asian financial crisis. Third, the estimated points of transition in the correlation are indicative of market participants’ awareness of the ensuing stock market crashes in July 1997 and in September 2008.

Details

The Evolving Role of Asia in Global Finance
Type: Book
ISBN: 978-0-85724-745-2

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Article
Publication date: 13 May 2020

Mariano Gonzalez Sanchez

This empirical work studies the influence of investors’ Internet searches on financial markets.

Abstract

Purpose

This empirical work studies the influence of investors’ Internet searches on financial markets.

Design/methodology/approach

In this study, an asset pricing model with six factors is used, and autoregression, heteroscedasticity and moving average are taken into account to extract the independent shocks of each variable. Subsequently, a causality in-mean and in-variance analysis is performed to test the influence of Google searches on financial market variables, specifically, to test whether there is an influence on the idiosyncratic returns of financial assets.

Findings

Unlike most of the literature, the results show that Google searches on the name of listed companies have little influence on the trend and volatility of asset returns. On the contrary, these searches are shown to have a significant influence on trading volumes in the following week.

Practical implications

When analyzing specific effects, such as the influence of Internet searches, on financial markets, it is necessary that the model must include financial properties (asset valuation models) and statistical characteristics (stylized facts); otherwise, the empirical results could be inconsistent, since, among other issues, statistical findings may not be robust given autocorrelation and heteroscedasticity, and if an asset valuation model is not considered, the specific effect analyzed could simply be an indirect effect of a risk factor excluded from the model.

Originality/value

The empirical evidence shows that individual investors using Google have a significant influence on volume only so that institutional investors using other sources of information drive market prices. This means that potential investors should only be interested in the Internet searches index if their interest is focused on trading volume

Details

Review of Behavioral Finance, vol. 13 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 5 October 2010

Yusaku Nishimura and Ming Men

The purpose of this paper is to examine the daily and overnight volatility spillover effects in common stock prices between China and G5 countries and explain their…

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Abstract

Purpose

The purpose of this paper is to examine the daily and overnight volatility spillover effects in common stock prices between China and G5 countries and explain their implications on the basis of empirical results.

Design/methodology/approach

The analysis utilizes the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model, the cross‐correlation function approach, and realized volatility for daily and intraday stock price data that cover the period from January 5, 2004 to December 31, 2007.

Findings

Principally, the paper concludes the following: strong evidence of short‐run one‐way volatility spillover effects from China to the US, UK, German and French stock markets is observed and the test results indicate that Chinese investors were not rational and China's stock market entered a speculative bubble period after the second half of 2006.

Originality/value

Contrary to widespread belief, the empirical results suggest that a small (China) stock market has significant influence on a large (G5) stock market but not vice versa. This paradox is interpreted as a particular phenomenon existing together with the rapid economic development and severe capital regulation in China.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. 3 no. 3
Type: Research Article
ISSN: 1754-4408

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Book part
Publication date: 2 September 2020

Sezer Bozkuş Kahyaoğlu and Hilmi Tunahan Akkuş

Introduction – The rapid flow of information between the markets eliminates the possibility of diversifying the portfolio by bringing the markets closer, and may cause the…

Abstract

Introduction – The rapid flow of information between the markets eliminates the possibility of diversifying the portfolio by bringing the markets closer, and may cause the volatility in a market to spread to another market. In this context, revealing the relationships between conventional and participation markets or financial assets is important in terms of portfolio diversification and risk management.

Purpose – The major aim of this work is to analyse the existence of volatility spillover between conventional stock index and participation index based on the indexes in Turkish Capital Markets. BIST-30 and Katılım-30 indexes are used as the representatives of conventional stock index and participation index, respectively.

Methodology – Firstly, the univariate HYGARCH (1,d,1) parameters are calculated, and secondly, the dynamic equicorrelation (DECO) methodology is applied. DECO model is proposed to simplify structural assumptions by introducing a structure in which all twosomes of returns take the same correlation for a given time period. In this way, DECO model enables to have an optimal portfolio selection in comparison to an unrestricted time varying-dynamic correlation approaches and gives more advanced forecasting ability for the duration of the financial crisis periods compared to the various portfolios.

Findings – There is a strong correlation between BIST-30 and Katılım-30. They are affected by the same shocks. We expect to see different investor behaviours for Katılım-30 and BIST-30. However, they seem to have almost the same investor profile. In addition, there is a causality in both ways and volatility spillover between them.

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Article
Publication date: 26 July 2021

TrungTuyen Dang, Zhang Caihong, ThiHong Nguyen, NgocTrung Nguyen and Cuong Tran

This study aims to examine the transmission mechanism of factors on the characteristic fluctuation of Vietnamese coffee bean export price (PVN).

Abstract

Purpose

This study aims to examine the transmission mechanism of factors on the characteristic fluctuation of Vietnamese coffee bean export price (PVN).

Design/methodology/approach

Applying Markov switching–vector autoregressive model.

Findings

Significantly, the empirical results showed that the transmission of independent variables on PVN is non-linear, and the fluctuation of PVN is affected by many factors, especially PVN in the previous period. In addition, the effect of Robusta coffee price was the greatest with coefficient is 0.28785, and the correlation between PVN and it was also the highest in both regimes with coefficients are 0.5317 and 0.3959, respectively.

Originality/value

These obtained results are in accordance with reality, as Vietnam is the largest exporter of Robusta coffee in the world.

Details

Journal of Asia Business Studies, vol. 15 no. 5
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 11 July 2016

Mehmet Balcilar, Gozde Cerci and Riza Demirer

The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors…

Abstract

Purpose

The purpose of this paper is to examine the international diversification benefits of Islamic bonds (Sukuk) for equity investors in conventional stock markets. The authors compare the diversification benefits of these securities with their conventional alternatives from advanced and emerging markets. Compared to conventional bonds, Sukuk are backed by tangible assets and carry both bond and stock-like features. Furthermore, the Sharia-based limitations limit the risk in these securities as a result of ethical investing rules. The regime-based model provides insight to possible segmentation (or integration) of these securities from global markets during different market states.

Design/methodology/approach

Risk spillover effects across conventional and Islamic stock and bond markets are examined using a Markov regime-switching GARCH model with dynamic conditional correlations (MS-DCC-GARCH). Weekly return series for conventional (advanced and emerging) and Islamic stock and bond indices are examined within a regime-dependent specification that takes into account low, high, and extreme volatility states. The DCC are then used to establish alternative diversified portfolios formed by supplementing conventional and Islamic equities with conventional and Islamic bonds one at a time.

Findings

Asymmetric shocks are observed from conventional stocks and bonds into Islamic bonds (Sukuk). Compared to emerging market bonds, Sukuk are found to display a different pattern in the transmission of global market shocks. The analysis of dynamic correlations suggests a low degree of association between Islamic bonds and global stock markets with episodes of negative correlations observed, particularly during market crisis periods. Portfolio performance analysis suggests that Islamic bonds provide valuable diversification benefits that are not possible to obtain from conventional bonds.

Originality/value

This study provides comprehensive analysis of volatility interactions and dynamic correlations across Islamic and conventional markets within a regime-based framework and provides insight to whether these securities could serve as safe havens or diversifiers for global investors. The findings have significant implications for global diversification strategies, particularly during market crisis periods.

Details

Managerial Finance, vol. 42 no. 7
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 March 2018

Alper Gormus, John David Diltz and Ugur Soytas

The purpose of this paper is to examine the price level and volatility impacts of oil prices on energy mutual funds (EMFs). The authors also examine specific fund…

Abstract

Purpose

The purpose of this paper is to examine the price level and volatility impacts of oil prices on energy mutual funds (EMFs). The authors also examine specific fund characteristics which might influence those interactions.

Design/methodology/approach

The authors test for volatility transmission between the oil prices and the funds in the sample. Later, the authors test to see which fund characteristics impact these volatility interactions.

Findings

The results show oil price movements lead majority of sample EMFs. The authors also find a volatility feedback relationship with most of the sample. Furthermore, the authors show the fund characteristics to be important indicators of these interactions. Morningstar rating, market capitalization and management tenure are found to be significant drivers of the relationships between EMFs and oil prices.

Originality/value

To the knowledge, there is not a study in literature which examines these relationships.

Details

Managerial Finance, vol. 44 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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