VOLATILITY OF CRUDE OIL PRICES, FOREIGN EXCHANGE EXPOSURES, AND COMPANY’S PERFORMANCE: EMPIRICAL EVIDENCE FROM TAIWANESE 3PL INDUSTRY

Abstract

Purpose of the study: In this paper, we investigate the impact of the changes in crude oil prices and fluctuation of foreign exchange rate on the operating performances of Taiwanese 3PL industry.Methodology: Vector Autoregression Models. Through the empirical model, we find that all the 3PL companies are more suffered to the volatility of WTI and Dubai crude oil prices, but Dubai is insignificant to the warehousing companies. In the fluctuations of foreign exchange rate, some have positive effect and some are negative.Main Findings: All the Taiwanese 3PL companies are more suffered to the volatility of WTI and Dubai crude oil prices, however Dubai is insignificant to the warehousing companies. Moreover, we find an interesting result, that is, for some companies operating performance, the impact on the volatilities of crude oil have the same sign but in opposite direction. For example, in our empirical results, the stock returns are positively correlated to volatilities of Dubai and Brent crude oil prices, however, WTI’s volatility has negative impact on them.Implications: It implies that the company can make a “natural hedge” strategy to hedge the crude oil volatility risk by forming a portfolio which pools these three commodities together. In this way, we made recommendations to the company’s decision-making reminding that the company should make a portfolio of foreign exchange and crude oil price fluctuations in the hedge strategy to enhance the company’s risk management operations and to reduce the loss caused by these factors.Novelty/Originality of this study: This study contributes in the existing literature for an empirically study of a firm-level evidence from Taiwanese 3PL companies.