We study the empirical performance of the classical minimum-variance hedging strategy, comparing several econometric models for estimating hedge ratios of crude oil, gasoline and heating oil crack spreads. Given the great variability and large jumps in both spot and futures prices, great care is required when processing the relevant data and accounting for the costs of maintaining and re-balancing the hedge position. We find that the variance reduction produced by all models are statistically and economically indistinguishable from the one-for-one naive hedge. However, minimum-variance hedging models, especially those based on GARCH, generate much greater margin and transaction costs than the naive hedge. Therefore we encourage hedgers to use a naive hedging strategy on the crack spread bundles now offered by the exchange as it is the cheapest and easiest to implement. Our conclusion contradicts the majority of the existing literature, which favours the implementation of GARCH-based hedging strategies.
{"title":"The (De)merits of Minimum-Variance Hedging: Application to the Crack Spread","authors":"C. Alexander, Marcel Prokopczuk, Anannit Sumawong","doi":"10.2139/ssrn.1986047","DOIUrl":"https://doi.org/10.2139/ssrn.1986047","url":null,"abstract":"We study the empirical performance of the classical minimum-variance hedging strategy, comparing several econometric models for estimating hedge ratios of crude oil, gasoline and heating oil crack spreads. Given the great variability and large jumps in both spot and futures prices, great care is required when processing the relevant data and accounting for the costs of maintaining and re-balancing the hedge position. We find that the variance reduction produced by all models are statistically and economically indistinguishable from the one-for-one naive hedge. However, minimum-variance hedging models, especially those based on GARCH, generate much greater margin and transaction costs than the naive hedge. Therefore we encourage hedgers to use a naive hedging strategy on the crack spread bundles now offered by the exchange as it is the cheapest and easiest to implement. Our conclusion contradicts the majority of the existing literature, which favours the implementation of GARCH-based hedging strategies.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"200-202 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130699160","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-06-01DOI: 10.1111/j.1753-0237.2012.00211.x
A. Romano, G. Scandurra
The oil price volatility registered in this period has suggested us to investigate the ef that variability has on price transmission mechanism on the Italian gasoline market. In this paper, we investigate the effect that price volatilities have on price speed adjustment in the production–distribution chain. We consider the wholesale and the retail market. We divide the sample into two subsamples and estimate, in the former, industrial gasoline price responses for a period of low volatility and a period with high volatility of oil prices and, in the latter, retail gasoline price responses for the same period of low and high volatilities of industrial prices. In the period marked by a large price volatility, the degree of asymmetry tends to decrease. In fact, the effects of downstream price decrease are larger than those of price increase and do not reflect the consumers' perception.
{"title":"Price Asymmetries and Volatility in the Italian Gasoline Market","authors":"A. Romano, G. Scandurra","doi":"10.1111/j.1753-0237.2012.00211.x","DOIUrl":"https://doi.org/10.1111/j.1753-0237.2012.00211.x","url":null,"abstract":"The oil price volatility registered in this period has suggested us to investigate the ef that variability has on price transmission mechanism on the Italian gasoline market. In this paper, we investigate the effect that price volatilities have on price speed adjustment in the production–distribution chain. We consider the wholesale and the retail market. We divide the sample into two subsamples and estimate, in the former, industrial gasoline price responses for a period of low volatility and a period with high volatility of oil prices and, in the latter, retail gasoline price responses for the same period of low and high volatilities of industrial prices. In the period marked by a large price volatility, the degree of asymmetry tends to decrease. In fact, the effects of downstream price decrease are larger than those of price increase and do not reflect the consumers' perception.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121531984","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the synergies between the policy response to the European crisis and the green economy. We begin by examining the causes of the European crisis, including the potential role played by resource constraints, in particular the rise in oil prices 2004-2008. Then we develop a matrix to assess the synergies between the crisis response and the green economy. We survey the literature on three green economy instruments, namely environmental fiscal reform, green investment and environmental innovation. We then assess their coherence with and potential contribution to the current crisis response.
{"title":"Exiting the Crisis in the Right Direction: A Sustainable and Shared Prosperity Plan for Europe","authors":"T. Spencer, L. Chancel, E. Guérin","doi":"10.2139/ssrn.2058200","DOIUrl":"https://doi.org/10.2139/ssrn.2058200","url":null,"abstract":"This paper investigates the synergies between the policy response to the European crisis and the green economy. We begin by examining the causes of the European crisis, including the potential role played by resource constraints, in particular the rise in oil prices 2004-2008. Then we develop a matrix to assess the synergies between the crisis response and the green economy. We survey the literature on three green economy instruments, namely environmental fiscal reform, green investment and environmental innovation. We then assess their coherence with and potential contribution to the current crisis response.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121857835","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose a new statistical instrument-free method to tackle the endogeneity problem. The proposed method models the joint distribution of the endogenous regressor and the error term in the structural equation of interest (the structural error) using a copula method, and it makes inferences on the model parameters by maximizing the likelihood derived from the joint distribution. Similar to the “exclusion restriction” in instrumental variable methods, extant instrument-free methods require the assumption that the unobserved instruments are exogenous, a requirement that is difficult to meet. The proposed method does not require such an assumption. Other benefits of the proposed method are that it allows the modeling of discrete endogenous regressors and offers a new solution to the slope endogeneity problem. In addition to linear models, the method is applicable to the popular random coefficient logit model with either aggregate-level or individual-level data. We demonstrate the performance of the proposed method via a series of simulation studies and an empirical example.
{"title":"Handling Endogenous Regressors by Joint Estimation Using Copulas","authors":"Sungho Park, Sachin Gupta","doi":"10.1287/mksc.1120.0718","DOIUrl":"https://doi.org/10.1287/mksc.1120.0718","url":null,"abstract":"We propose a new statistical instrument-free method to tackle the endogeneity problem. The proposed method models the joint distribution of the endogenous regressor and the error term in the structural equation of interest (the structural error) using a copula method, and it makes inferences on the model parameters by maximizing the likelihood derived from the joint distribution. Similar to the “exclusion restriction” in instrumental variable methods, extant instrument-free methods require the assumption that the unobserved instruments are exogenous, a requirement that is difficult to meet. The proposed method does not require such an assumption. Other benefits of the proposed method are that it allows the modeling of discrete endogenous regressors and offers a new solution to the slope endogeneity problem. In addition to linear models, the method is applicable to the popular random coefficient logit model with either aggregate-level or individual-level data. We demonstrate the performance of the proposed method via a series of simulation studies and an empirical example.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"100 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129542664","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2012-01-01DOI: 10.12778/235108618x15452373184986
Punninon Sirisuwat, Teerasak Jindabot
Export performance in the industry is the top goal of business operation which can be measured from export’s sales volume, growth rate of sales volume, growth rate of benefits, marketing ability, acceptance in overseas markets, company’s demand in sales revenue increment, and growth rate in overseas markets. The mentioned factors impact on the company’s ability to sustain itself in the overseas markets. Factors that are related to export performance are export marketing strategies, competitiveness, the relationship between buyers and sellers, readiness of resources, and government support.
{"title":"The Rubber Export Industry in Thailand: An Analysis of Export Performance","authors":"Punninon Sirisuwat, Teerasak Jindabot","doi":"10.12778/235108618x15452373184986","DOIUrl":"https://doi.org/10.12778/235108618x15452373184986","url":null,"abstract":"Export performance in the industry is the top goal of business operation which can be measured from export’s sales volume, growth rate of sales volume, growth rate of benefits, marketing ability, acceptance in overseas markets, company’s demand in sales revenue increment, and growth rate in overseas markets. The mentioned factors impact on the company’s ability to sustain itself in the overseas markets. Factors that are related to export performance are export marketing strategies, competitiveness, the relationship between buyers and sellers, readiness of resources, and government support.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131766606","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
With over 150GW of installed capacity and around 723.8 BUs of electricity generation during 2008-09, India remains the 5th largest consumer of electricity in the world. Coal fired power plants account for more than half of the installed capacity and caters to more than 65% of the power demand. Against the prevalent practice of ratio analysis being used for the performance estimation, the study uses non-parametric Data Envelopment Analysis (DEA) to estimate the relative technical efficiency and scale efficiencies of coal-based power plants in India. It is found that the average technical efficiency of these plants is 83.2% with as many as 38 plants below the mean level. Distribution of the less efficient plants in different sectors, regions, their peer groups and the return to scale properties are analyzed.
{"title":"Performance Analysis of Coal Fired Power Plants in India","authors":"S. Behera, A. Dash, J. A. Farooquie","doi":"10.2139/ssrn.2694154","DOIUrl":"https://doi.org/10.2139/ssrn.2694154","url":null,"abstract":"With over 150GW of installed capacity and around 723.8 BUs of electricity generation during 2008-09, India remains the 5th largest consumer of electricity in the world. Coal fired power plants account for more than half of the installed capacity and caters to more than 65% of the power demand. Against the prevalent practice of ratio analysis being used for the performance estimation, the study uses non-parametric Data Envelopment Analysis (DEA) to estimate the relative technical efficiency and scale efficiencies of coal-based power plants in India. It is found that the average technical efficiency of these plants is 83.2% with as many as 38 plants below the mean level. Distribution of the less efficient plants in different sectors, regions, their peer groups and the return to scale properties are analyzed.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"115 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133646058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Improving living standards amidst falling oil prices among countries relying heavily on an ample supply of oil presents numerous challenges. Therefore, the relationship associated with oil price changes with identifiable metrics that explain standards of living becomes critical. The following issues are presented in this paper: the management of wealth; sustaining a standard of living; peculiarities of oil trade; oil price determination; and management and the uncharacteristic application of supply and demand. Since aspects of the world oil market remain unclear and opaque, society is in need of credible research and verifiable theory. Data relating to Kuwait over a 32-year period (1983 ‐ 2014) were obtained. Five independent variables—investment growth, inflation, percentage change in price per barrel, unemployment, and percent change in the number of incarcerations—are regressed with a change in real GDP (dependent variable). Finally, to determine the robustness of the model, the Durbin-Watson test was used. The coefficient of determination (r 2 ) suggests that 66.24% of variations in lifestyle can be explained by variations in the five independent variables (p < 0.01). Standards of living can be sustained by increasing growth in investment, decreasing inflation, decreasing unemployment and incarcerations, and most importantly increasing the price of oil. This study places Kuwait as a proxy for the Gulf Countries and should ideally be extended to the other five Gulf Countries. Comparative studies over multiple periods of time ought to be undertaken to measure the robustness of different sustainability measures.
{"title":"Sustaining Standard of Living Amidst Volatile Oil Prices – Lessons from the Gulf Countries","authors":"K. Sabah, R. Palliam, A. Salem","doi":"10.7916/D81G0M3Z","DOIUrl":"https://doi.org/10.7916/D81G0M3Z","url":null,"abstract":"Improving living standards amidst falling oil prices among countries relying heavily on an ample supply of oil presents numerous challenges. Therefore, the relationship associated with oil price changes with identifiable metrics that explain standards of living becomes critical. The following issues are presented in this paper: the management of wealth; sustaining a standard of living; peculiarities of oil trade; oil price determination; and management and the uncharacteristic application of supply and demand. Since aspects of the world oil market remain unclear and opaque, society is in need of credible research and verifiable theory. Data relating to Kuwait over a 32-year period (1983 ‐ 2014) were obtained. Five independent variables—investment growth, inflation, percentage change in price per barrel, unemployment, and percent change in the number of incarcerations—are regressed with a change in real GDP (dependent variable). Finally, to determine the robustness of the model, the Durbin-Watson test was used. The coefficient of determination (r 2 ) suggests that 66.24% of variations in lifestyle can be explained by variations in the five independent variables (p < 0.01). Standards of living can be sustained by increasing growth in investment, decreasing inflation, decreasing unemployment and incarcerations, and most importantly increasing the price of oil. This study places Kuwait as a proxy for the Gulf Countries and should ideally be extended to the other five Gulf Countries. Comparative studies over multiple periods of time ought to be undertaken to measure the robustness of different sustainability measures.","PeriodicalId":436211,"journal":{"name":"ERN: Natural Resource Economics (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129094185","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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