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Nonlinear and Nonparametric Dynamical Methods in Economics and Finance
Linköping University, Department of Management and Engineering, Economics. Linköping University, Faculty of Arts and Sciences.
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The objectives of the thesis - which comprises six parts – can be summarized in i) implementing linear and nonlinear/nonparametric approaches toward detecting, measuring and analyzing the nature and directionality of causal relationships in financial markets, ii) elaborating on modern topics in financial investment analysis, iii) probing into the role of commodity futures in constructing optimal portfolios as well as iv) investigating growth dynamics via aggregated and disaggregated indices.

The first paper named “Analyzing causal interactions between sectoral equity returns and commodity futures returns in the aftermath of the global financial crisis: The case of the US and EU equity returns”, aims to explore and compare the dependence and co-movement structure between commodity and various asset classes’ returns including the USA and EU stock markets via the use of linear and non-linear causality testing in a comparative context with the additional adjustment for cointegration and conditional heteroscedasticity. The findings provide important implications for optimal asset allocation and portfolio diversification with respect to various market conditions, namely both in “good” and “bad” (crisis) times.

The second paper is entitled “On the time scale behaviour of Equity-Commodity links: Implications for Portfolio Management”, and has been published in the Journal of International Financial Markets, Institutions and Money (2016). The study is co-authored with Professors S. Bekiros, D.K. Nguyen, and B. Sjö. It develops a holistic framework for the investigation of the multi-horizon and intra-frequency causal directionalities of various asset classes, by means of multi-resolution analysis. The results verify the assumption that financial markets exhibit time-varying co-movement patterns, which are fundamentally important in a) generating profitable trading strategies according to different investor horizon expectations and b) decoding the financialization mechanism across various asset classes.

The third paper entitled “Business Cycle (de) Synchronization in the aftermath of the Global Financial Crisis: Implications for the Euro Area”, was published at Studies in Nonlinear Dynamics and Econometrics (2015) and is co-authored with S. Bekiros, D.K Nguyen and B. Sjö. In this work, the scale-dependent time-varying (de)synchronization effects between the Eurozone and the broad Euro area business cycles are revealed, before and after the global financial crisis. The results, which point towards an increased observed comovement during the crisis period for the Euro area, could be catalytic for the introduction of a more efficient monetary policy by EU institutions and in particular by the European Central Bank.

In the fourth paper, “Do financial stress and policy uncertainty have an impact on the energy and metals markets? A quantile regression approach”, which was published in the International Review of Economics and Finance (2016) and co-authored with J.C. Reboredo, the financial and policy uncertainty is investigated in relation to the price dynamics of energy and metal commodity futures’ markets. This work lead to the analysis of the asymmetric interrelationships with respect to changes in the perceptions of various risk measures, covering various periods, i.e., “normal” vs. “turbulent” such as upward or downward market episodes.

The fifth paper, co-authored with P. Andreasson, S. Bekiros and D.K. Nguyen, is entitled “The impact of speculation and economic uncertainty on commodity markets”, and is published in the International Review of Financial Analysis (2016). This paper attempts a novel methodological approach to measuring speculation in commodity markets, in particular whether market speculation drives agricultural commodity prices or viceversa. The assessment of the empirical analysis demonstrates that agricultural prices are not affected by speculation.

Finally, the sixth paper “Energy and Output Dynamics in Bangladesh”, co-authored with B.P. Paul, was published in Energy Economics (2011) and explores the relationship between energy utilization and economic growth in Bangladesh. Specifically, it deals with the important issue of whether energy consumption can be reduced without affecting economic growth while at the same time implicitly may lead to poverty reduction. The findings substantiate the fact that a) energy usage has become more efficient in recent times, as well as indicate that b) fluctuations in energy consumption did not have a significant impact on economic output.

Place, publisher, year, edition, pages
Linköping: Linköping University Electronic Press, 2016. , 15 p.
Series
Linköping Studies in Arts and Science, ISSN 0282-9800 ; 680
Keyword [en]
Commodity markets, Nonlinear causality testing, Dependence structure, Business cycles, Timescale analysis, Growth dynamics, Portfolio management
National Category
Economics Economics and Business
Identifiers
URN: urn:nbn:se:liu:diva-127340DOI: 10.3384/diss.diva-127340ISBN: 978-91-7685-768-7 (print)OAI: oai:DiVA.org:liu-127340DiVA: diva2:921796
Public defence
2016-05-23, ACAS, Entrance 17, Building A, Campus Valla, Linköpiong, 10:15 (English)
Opponent
Supervisors
Available from: 2016-04-21 Created: 2016-04-21 Last updated: 2016-06-14Bibliographically approved
List of papers
1. On the time scale behavior of equity-commodity links: Implications for portfolio management
Open this publication in new window or tab >>On the time scale behavior of equity-commodity links: Implications for portfolio management
2016 (English)In: Journal of international financial markets, institutions, and money, ISSN 1042-4431, E-ISSN 1873-0612, Vol. 41, 30-46 p.Article in journal (Refereed) Published
Abstract [en]

We investigate the time-scale relationships between US equity and commodity markets. The empirical evidence from the risk-return profitability analysis based on the wavelet coherence measure shows that equity and commodity markets exhibit time-varying comovement patterns and behave differently across investment horizons. Moreover, we find evidence of time-frequency causality between the two investigated markets. Our results can have important implications for optimal asset allocation and portfolio diversification.

Place, publisher, year, edition, pages
Elsevier, 2016
National Category
Business Administration Economics
Identifiers
urn:nbn:se:liu:diva-124590 (URN)10.1016/j.intfin.2015.12.003 (DOI)000373611400003 ()
Note

Funding agencies:  Marie Curie Fellowship under 7th European Community Framework Programme [FP7-PEOPLE-2011-CIG, No 303854]

Available from: 2016-02-05 Created: 2016-02-05 Last updated: 2017-11-30
2. BUSINESS CYCLE (DE)SYNCHRONIZATION IN THE AFTERMATH OF THE GLOBAL FINANCIAL CRISIS: IMPLICATIONS FOR THE EURO AREA
Open this publication in new window or tab >>BUSINESS CYCLE (DE)SYNCHRONIZATION IN THE AFTERMATH OF THE GLOBAL FINANCIAL CRISIS: IMPLICATIONS FOR THE EURO AREA
2015 (English)In: Studies in Nonlinear Dynamics and Econometrics, ISSN 1081-1826, E-ISSN 1558-3708, Vol. 19, no 5, 609-624 p.Article in journal (Refereed) Published
Abstract [en]

The introduction of Euro currency was a game-changing event intended to induce convergence of Eurozone business cycles on the basis of greater monetary and fiscal integration. The benefit of participating into a common currency area exceeds the cost of losing autonomy in national monetary policy only in case of cycle co-movement. However, synchronization was put back mainly due to country-specific differences and asymmetries in terms of trade and fiscal policies that became profound at the outset of the global financial crisis. As opposed to previous studies that are mostly based on linear correlation or causality modeling, we utilize the cross-wavelet coherence measure to detect and identify the scale-dependent time-varying (de)synchronization effects amongst Eurozone and the broad Euro area business cycles before and after the financial crisis. Our results suggest that the  inforcement of an active monetary policy by the ECB during crisis periods could provide an effective stabilization instrument for the entire Euro area. However, as dynamic patterns in the lead-lag relationships of the European economies are revealed, (de)synchronization varies across different frequency bands and time horizons.

Place, publisher, year, edition, pages
De Gruyter, 2015
Keyword
Convergence; wavelet coherence; integration; Eurozone
National Category
Economics
Identifiers
urn:nbn:se:liu:diva-114869 (URN)10.1515/snde-2014-0055 (DOI)000366523800004 ()
Available from: 2015-03-05 Created: 2015-03-05 Last updated: 2017-12-04
3. Do financial stress and policy uncertainty have an impact on the energy and metals markets?: A quantile regression approach
Open this publication in new window or tab >>Do financial stress and policy uncertainty have an impact on the energy and metals markets?: A quantile regression approach
2016 (English)In: International Review of Economics and Finance, ISSN 1059-0560, E-ISSN 1873-8036, Vol. 43, 284-298 p.Article in journal (Refereed) Published
Abstract [en]

Abstract This paper examines the impact of financial stress and policy uncertainty on the price dynamics of energy (crude oil, heating oil and gas) and metal (gold, silver, copper, platinum and palladium) commodity futures in the USA. Using a quantile regression approach for the period 1994–2015, our empirical results show that, after controlling for the effect of general stock market returns and interest rates, there is neither co-movement nor Granger causality between commodity futures prices and financial uncertainty as measured by the VIX or between commodity prices and policy uncertainty. However, we find evidence that financial stress had Granger causality effects in intermediate and upper commodity return quantiles, but no evidence of co-movement. We also show that the impact of the global financial crisis on commodity returns differed across quantiles, only having a negative impact in upper quantiles. Our results indicate that general stock market uncertainty conditions are not so crucial in determining commodity futures prices.

Place, publisher, year, edition, pages
Elsevier, 2016
Keyword
Commodity prices, Financial uncertainty, Policy uncertainty, Quantile regression
National Category
Economics Economics and Business
Identifiers
urn:nbn:se:liu:diva-127337 (URN)10.1016/j.iref.2015.10.043 (DOI)000375632300021 ()
Note

Funding agencies:  Xunta de Galicia; FEDER [GPC2013-045]

Available from: 2016-04-21 Created: 2016-04-21 Last updated: 2017-11-30Bibliographically approved
4. Impact of speculation and economic uncertainty on commodity markets
Open this publication in new window or tab >>Impact of speculation and economic uncertainty on commodity markets
2016 (English)In: International Review of Financial Analysis, ISSN 1057-5219, E-ISSN 1873-8079, Vol. 43, 115-127 p.Article in journal (Refereed) Published
Abstract [en]

Abstract We examine the interactions between commodity futures returns and five driving factors (financial speculation, exchange rate, stock market dynamics, implied volatility for the US equity market, and economic policy uncertainty). Nonlinear causality tests are implemented after controlling for cointegration and conditional heteroscedasticity in the data over the period May 1990 – April 2014. Our results show strong evidence of unidirectional linear causality from commodity returns to excess speculation for the majority of the considered commodities, in particular for agriculture commodities. This evidence casts doubt on the claim that speculation is driving food prices. We also find unidirectional linear causality from energy futures markets to exchange rates and strong evidence of nonlinear causal dependence between commodity futures returns, on the one hand, and stock market returns and implied volatility, on the other hand. Overall, the new evidence found in this paper can be utilized for policy and investment decision-making.

Keyword
Commodity markets, Economic uncertainty, Nonlinear causality, Step-wise filtering
National Category
Economics Economics and Business
Identifiers
urn:nbn:se:liu:diva-127338 (URN)10.1016/j.irfa.2015.11.005 (DOI)
Available from: 2016-04-21 Created: 2016-04-21 Last updated: 2017-11-30Bibliographically approved
5. Energy and output dynamics in Bangladesh
Open this publication in new window or tab >>Energy and output dynamics in Bangladesh
2011 (English)In: Energy Economics, ISSN 0140-9883, E-ISSN 1873-6181, Vol. 33, no 3, 480-487 p.Article in journal (Refereed) Published
Abstract [en]

The relationship between energy consumption and output is still ambiguous in the existing literature. The economy of Bangladesh, having spectacular output growth and rising energy demand as well as energy efficiency in recent decades, can be an ideal case for examining energy-output dynamics. We find that while fluctuations in energy consumption do not affect output fluctuations, movements in output inversely affect movements in energy use. The results of Granger causality tests in this respect are consistent with those of innovative accounting that includes variance decompositions and impulse responses. Autoregressive distributed lag models also suggest a role of output in Bangladesh's energy use. Hence, the findings of this study have policy implications for other developing nations where measures for energy conservation and efficiency can be relevant in policymaking.

Place, publisher, year, edition, pages
Elsevier, 2011
National Category
Social Sciences
Identifiers
urn:nbn:se:liu:diva-91684 (URN)10.1016/j.eneco.2010.11.011 (DOI)
Available from: 2013-04-29 Created: 2013-04-29 Last updated: 2017-12-06Bibliographically approved

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