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Article
Publication date: 24 October 2018

Shiyuan Zheng and Shun Chen

This study aims to propose a theoretical model to characterize the optimal forward freight agreement (FFA) procurement strategies and investigate the determinants of FFA trading…

1924

Abstract

Purpose

This study aims to propose a theoretical model to characterize the optimal forward freight agreement (FFA) procurement strategies and investigate the determinants of FFA trading activities from a new cross-market perspective.

Findings

A two-step model specification is used to empirically test the theoretical results for the Capesize, Panamax and Supramax sectors. It is found that spot demand has a positive relation with FFA trading volume for all three sectors. Moreover, spot demand volatility has a negative relation, while the correlation between spot demand and spot rate has a positive relation with FFA trading volume for the Capesize and Panamax sectors.

Originality/value

The results show that the expected spot demand is scaled by a “quantity premium,” which is the product of a demand covariance term, a demand riskiness term and a demand volatility term. This can be used by the traders in the FFA market to construct their hedging strategies.

Details

Maritime Business Review, vol. 3 no. 3
Type: Research Article
ISSN: 2397-3757

Keywords

Open Access
Article
Publication date: 31 May 2012

Yuen Jung Park

This paper investigates the information content of implied volatilities inferred from individual stock options quoted over-the-counter (OTC). First, we examine whether the implied…

49

Abstract

This paper investigates the information content of implied volatilities inferred from individual stock options quoted over-the-counter (OTC). First, we examine whether the implied volatility has better explanatory power than historical volatility for forecasting future realized volatility of the underlying stock return. Next, we analyze the properties of volatility spreads, the difference between implied volatilities and realized volatilities. Using near-the-money options for 10 firms over the sample period from April 2005 to April 2010, we first demonstrate that the implied volatilities for most firms don’t have additional information beyond what are already contained in historical volatilities. However, the implied volatilities with some specific remaining maturities for two firms dominate historical volatilities in explaining the future realized volatilities. Second, we find that during the period before global financial crisis, the implied volatilities are systematically lower than the future realized volatilities whereas this reversal disappears after the year 2008. This finding suggests that there’s a possibility of the risk loving behavior of the investors in OTC individual stock options market during the pre-global crisis period. Finally, through the comparative analysis of the KOSPI200 index options quoted OTC over the same sample period, we conclude that the OTC individual stock options market has distinctive characteristics like the KRW/USD OTC currency options market.

Details

Journal of Derivatives and Quantitative Studies, vol. 20 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 August 2014

Sun-Joong Yoon

This study verifies the existence of implied volatility distortion by the rapid growth of structured products such as Equity Linked Securities (ELS) in Korean financial markets…

45

Abstract

This study verifies the existence of implied volatility distortion by the rapid growth of structured products such as Equity Linked Securities (ELS) in Korean financial markets and provides the policy implications to overcome such a distortion. The most ELS products issued in Korea have a step-down auto-callable payoff structure consisting of short position in down-and-in barrier put options and long position in digital call options. Financial companies which have issued ELS are exposed to the volatility risk, i.e. long vega position, and tend to execute the volatility transactions of short vega. For instance, the financial companies issue Equity-Linked Warrants or sell listed/over-the-counter vanilla options, both of which have short position in volatility risk. Accordingly, the demand for selling volatility is stronger than for buying volatility in the Korean financial markets. According to the empirical results, we conform that the rapid growth of the ELS products induces the pressure for lowering volatility and furthermore, the volatility spreads, defined as the difference between implied volatility and realized volatility, also decrease with respect the amount of the newly issued ELS. Lastly, to mitigate the volatility distortion effect, we suggest to list VKOSPI-related derivatives securities such as VKOSPI futures and options, which in turn balance the trading demands for selling and buying volatilities.

Details

Journal of Derivatives and Quantitative Studies, vol. 22 no. 3
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 31 May 2011

Byung Jin Kang

This paper investigate the information content of implied volatilities derived from KRW/USD OTC currency options. First, we examined the explanatory power of implied volatilities

14

Abstract

This paper investigate the information content of implied volatilities derived from KRW/USD OTC currency options. First, we examined the explanatory power of implied volatilities in forecasting future realized volatilities of the spot exchange rates. Next, we examined the dynamic properties of volatility spreads, the difference between implied volatilities and realized volatilities, observed in KRW/USD currency option markets. Using the sample data from January 2006 through March 2010, we first find that even though the implied volatilities have a little explanatory power in forecasting future realized volatilities, they don't improve the information content of simple historical volatilities at all. Second, this paper finds that during the period before global financial crisis in 2008, the implied volatilities are consistently lower than the realized volatilities. This suggests that we cannot exclude the possibility of risk seeking behavior of the investors in KRW/USD OTC currency option markets at that time. Finally, from the comparative analysis with KOSPI 200 index options for the same sample period, we confirmed that our empirical results are uniquely observed only in KRW/USD OTC currency option markets.

Details

Journal of Derivatives and Quantitative Studies, vol. 19 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 30 November 2005

Jae Ha Lee and Je Ryun Chung

This study examines the lead-lag relationship between KOSPI200 and the volatility index based on the implied volatility from the KOSPI200 options. The sample period covers from…

54

Abstract

This study examines the lead-lag relationship between KOSPI200 and the volatility index based on the implied volatility from the KOSPI200 options. The sample period covers from January 2, 2003 to June 30, 2004. Both daily and minute-by-minute data were used for the lead-lag analysis. The study also determines whether the response of volatil ity index to KOSPI200 is symmetric or not. The most important findings may be summarized as follows.

First, there is no lead-lag relationship between the change in volatility index and the KOSPI200 returns on a daily basis. However, on a minute-by-minute basis, volatility index leads KOSPI200 for the group of largest increases in volatility index, and the opposite is true for the group of largest decreases and least changes in volatility index. The option market appears to react more quickly to volatility increases, while the stock market seems more sensitive to volatility decreases. Second, the volatility increase in response to the stock market decline is more severe than the volatility decrease in response to the stock market rise for daily data. This evidence of asymmetry suggests that volatility index plays a role of investors’fear gauge. Our results show no asymmetric response of volatility index to stock market movements for weekly data.

Details

Journal of Derivatives and Quantitative Studies, vol. 13 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Open Access
Article
Publication date: 20 November 2023

Ezekiel Olamide Abanikanda and James Temitope Dada

Motivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external…

Abstract

Purpose

Motivated by the negative effect of external shocks on the domestic economy, this study explores the role of financial sector development in absorbing the effect of external shocks on macroeconomic volatility in Nigeria.

Design/methodology/approach

Autoregressive distributed lag and fully modify ordinary least square are used to examine the moderating effect of financial development in the link between external shocks and macroeconomic volatilities in Nigeria between 1986Q1 and 2019Q4. External shock is proxy using oil price shock, and financial development is proxy by domestic credit to the private sector and market capitalisation. At the same time, macroeconomic volatility is proxy by output and inflation volatilities. Macroeconomic volatilities are generated using generalised autoregressive conditional heteroskedasticity (GARCH 1,1).

Findings

The results indicate that domestic credit to the private sector significantly reduces output and inflation volatilities in Nigeria in the short and long run. However, market capitalisation promotes macroeconomic volatility. More specifically, financial development indicators play different roles in curtaining macroeconomic volatilities. The results also reveal that external shocks stimulate macroeconomic volatility in Nigeria in the short and long run. Nevertheless, the effects of external shocks on macroeconomic volatilities are reduced when the role of financial development is incorporated.

Practical implications

This study, therefore, concludes that strong financial sector development serves as a significant shock absorber in reducing the adverse effect of external shock on the domestic economy.

Originality/value

This study contributes to the extant studies by introducing a country-specific analysis into the empirical examination of how financial development can moderate the influence of external shock on macroeconomic volatilities.

Details

PSU Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2399-1747

Keywords

Open Access
Article
Publication date: 6 April 2023

Ola Al Sayed, Noha Sami Omar and Abdelmoneam Khaled

This paper aims to discuss the main characteristics of the Middle East North Africa (MENA) region's capital inflows volatility. It also examines the effect of institutional…

Abstract

Purpose

This paper aims to discuss the main characteristics of the Middle East North Africa (MENA) region's capital inflows volatility. It also examines the effect of institutional quality and information availability on capital inflows volatility in selected MENA countries (Bahrain, Egypt, Israel, Jordan, Kuwait, Libya, Morocco, Oman, Saudi Arabia and Tunisia) in the period 1996–2017.

Design/methodology/approach

The study's assessments are based on the International Country Risk Guide (ICRG) and globalization indices. It also employs an updated data set of balance of payments indicators released by the International Monetary Fund. Moreover, the study uses econometric panel modeling of random effect model, with Driscoll-Kraay robust standard error, to analyze the relationship between capital inflows volatility, institutional quality and information availability.

Findings

The paper finds that both institutional quality and information availability are in an inverse relationship with the total capital inflows volatility in the MENA region. However, the findings vary across the different components of total capital inflows. For example, the volatility of foreign direct investment (FDI) declines, like total capital flows, as the two factors improve. However, the volatility of foreign portfolio investment (FPI) is negatively related to institutional quality but does not have any significant relationship with information availability. While the volatility of foreign other investments (FOI) decreases with the availability of information, but does not have any significant relationship with institutional quality.

Originality/value

This paper expands the limited literature regarding the determinants of capital inflows volatility. Furthermore, it is the first study that investigates the effect of institutional quality and information availability on capital inflows volatility in the MENA region.

Details

Review of Economics and Political Science, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2356-9980

Keywords

Open Access
Article
Publication date: 15 March 2024

Anis Jarboui, Emna Mnif, Nahed Zghidi and Zied Akrout

In an era marked by heightened geopolitical uncertainties, such as international conflicts and economic instability, the dynamics of energy markets assume paramount importance…

Abstract

Purpose

In an era marked by heightened geopolitical uncertainties, such as international conflicts and economic instability, the dynamics of energy markets assume paramount importance. Our study delves into this complex backdrop, focusing on the intricate interplay the between traditional and emerging energy sectors.

Design/methodology/approach

This study analyzes the interconnections among green financial assets, renewable energy markets, the geopolitical risk index and cryptocurrency carbon emissions from December 19, 2017 to February 15, 2023. We investigate these relationships using a novel time-frequency connectedness approach and machine learning methodology.

Findings

Our findings reveal that green energy stocks, except the PBW, exhibit the highest net transmission of volatility, followed by COAL. In contrast, CARBON emerges as the primary net recipient of volatility, followed by fuel energy assets. The frequency decomposition results also indicate that the long-term components serve as the primary source of directional volatility spillover, suggesting that volatility transmission among green stocks and energy assets tends to occur over a more extended period. The SHapley additive exPlanations (SHAP) results show that the green and fuel energy markets are negatively connected with geopolitical risks (GPRs). The results obtained through the SHAP analysis confirm the novel time-varying parameter vector autoregressive (TVP-VAR) frequency connectedness findings. The CARBON and PBW markets consistently experience spillover shocks from other markets in short and long-term horizons. The role of crude oil as a receiver or transmitter of shocks varies over time.

Originality/value

Green financial assets and clean energy play significant roles in the financial markets and reduce geopolitical risk. Our study employs a time-frequency connectedness approach to assess the interconnections among four markets' families: fuel, renewable energy, green stocks and carbon markets. We utilize the novel TVP-VAR approach, which allows for flexibility and enables us to measure net pairwise connectedness in both short and long-term horizons.

Details

Arab Gulf Journal of Scientific Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-9899

Keywords

Open Access
Article
Publication date: 6 February 2019

Ngo Thai Hung

This paper aims to study the daily returns and volatility spillover effects in common stock prices between China and four countries in Southeast Asia (Vietnam, Thailand, Singapore…

6507

Abstract

Purpose

This paper aims to study the daily returns and volatility spillover effects in common stock prices between China and four countries in Southeast Asia (Vietnam, Thailand, Singapore and Malaysia).

Design/methodology/approach

The analysis uses a vector autoregression with a bivariate GARCH-BEKK model to capture return linkage and volatility transmission spanning the period including the pre- and post-2008 Global Financial Crisis.

Findings

The main empirical result is that the volatility of the Chinese market has had a significant impact on the other markets in the data sample. For the stock return, linkage between China and other markets seems to be remarkable during and after the Global Financial Crisis. Notably, the findings also indicate that the stock markets are more substantially integrated into the crisis.

Practical implications

The results have considerable implications for portfolio managers and institutional investors in the evaluation of investment and asset allocation decisions. The market participants should pay more attention to assess the worth of across linkages among the markets and their volatility transmissions. Additionally, international portfolio managers and hedgers may be better able to understand how the volatility linkage between stock markets interrelated overtime; this situation might provide them benefit in forecasting the behavior of this market by capturing the other market information.

Originality/value

This paper would complement the emerging body of existing literature by examining how China stock market impacts on their neighboring countries including Vietnam, Thailand, Singapore and Malaysia. Furthermore, this is the first investigation capturing return linkage and volatility spill over between China market and the four Southeast Asian markets by using bivariate VAR-GARCH-BEKK model. The authors believe that the results of this research’s empirical analysis would amplify the systematic understanding of spillover activities between China stock market and other stock markets.

Details

Journal of Economics, Finance and Administrative Science, vol. 24 no. 47
Type: Research Article
ISSN: 2077-1886

Keywords

Open Access
Article
Publication date: 11 March 2020

Jessica Paule-Vianez, Camilo Prado-Román and Raúl Gómez-Martínez

The goal of this work is to determine whether Bitcoin behaves as a safe-haven asset. In order to do so, the influence of Economic Policy Uncertainty (EPU) on Bitcoin returns and…

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Abstract

Purpose

The goal of this work is to determine whether Bitcoin behaves as a safe-haven asset. In order to do so, the influence of Economic Policy Uncertainty (EPU) on Bitcoin returns and volatility was studied.

Design/methodology/approach

It is evaluated whether, when compared with the evolution of EPU, Bitcoin's returns and volatility show behaviours typical of safe havens or rather, those of conventional speculative assets. When faced with an increase in EPU, safe havens – such as gold – can be expected to increase their returns and volatility, while conventional speculative assets will increase their volatility and reduce their returns. This study uses simple linear regression and quantile regression models on a daily data sample from 19 July 2010 to 11 April 2019, to analyse the influence of EPU on the returns and volatility of Bitcoin and gold.

Findings

Bitcoin's returns and volatility increase during more uncertain times, just like gold, showing that Bitcoin acts not only as a means of exchange but also shows characteristics of investment assets, specifically of safe havens. These findings provide useful information to investors by allowing Bitcoin to be considered as a tool to protect savings in times of economic uncertainty and to diversify portfolios.

Originality/value

This study complements and expands current research by aiming to answer the question of whether Bitcoin is a simple speculative asset or a safe haven. The most significant contribution is to show that Bitcoin is not a mere speculative asset but behaves like a safe haven.

目的

本研究旨在確定比特幣是不是避難所資產。為達這目的,研究人員探討了經濟政策不確定性對比特幣的回報及波動性的影響。

研究設計/方法/理念

研究評估比特幣的回報和波動性,若與經濟政策不確定的進化作比較,會顯示資金避難所的典型行為,抑或顯示傳統投機資產的行為。當面對經濟政策不確定的增加時,資金避難所 - 如黃金-會被預期有回報及波動性的上升。但傳統投機資產則其波動性會增加及其回報會減少。本研究使用簡單線性迴歸及分位數迴歸模型,根據從2010年7月19曰至2019年4月11日期間每天的數據樣本,來分析經濟政策不確定對比特幣和黃金的回報及波動性所產生的影響。

研究結果

像黃金一樣,在較不明朗的時期,比特幣的回報和波動會增加,這顯示比特幣不單是一個交易工具,它也表現投資資產的特性,特別是資金避難所的特性。這研究結果為投資者提供有用的資訊,讓他們在經濟不明朗時考慮以比特幣作為保障存款的工具,及以比特幣作為使其投資組合更多元化的工具。

研究的原創性/價值

本研究旨在探索比特幣是一簡單的投機資產、抑或是一資金避難所,這補足及擴展了目前的研究。本研究最重要的貢獻、在於顯示了比特幣不單純是一種投機資產,它的行為實像資金避難所一樣。

Details

European Journal of Management and Business Economics, vol. 29 no. 3
Type: Research Article
ISSN: 2444-8451

Keywords

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