Negative Price Research Articles

Jump tail risk exposure and the cross-section of stock returns

We introduce a new jump tail risk measure retrieved from option prices. We examine the cross-sectional pricing of stocks according to their sensitivities to jump tail risk. We find a negative market price of jump tail risk. A high-low portfolio sorted by jump tail risk betas delivers a statistically and economically significant negative premium of -9.95% per year. Risk-adjusted returns are also negative and highly significant. We document that the negative jump tail risk premium is mainly driven by its downside jump tail risk component. On the contrary, the premium of the high-low portfolio sorted by upside jump tail risk betas is insignificant. The negative premium of downside jump tail risk is significant when controlling for various risk factor loadings and firm characteristics, and remains strong for large firms. Our results carry over to a predictive setting, in which we compare subsequent realized returns of the quintile portfolios sorted by downside jump tail risk betas estimated over the previous period.

Research on the Correlation between the Movement of the Dollar and the Price of Gold

Abstract. Gold acts as a hedge to protect investors' assets. The U.S. dollar is a global currency and has an important place in international trade. Oil, on the other hand, is a non-renewable resource and an important international resource with unstable prices. This study used price data for the U.S. dollar, gold and oil from 2000 to 2023 to analyze the movement of gold, U.S. dollar and oil prices. The experiment uses a regression model to determine the effect of the dollar on the price of oil and gold. The study found a significant negative correlation between the U.S. dollar and the price of gold and an insignificant negative correlation with oil between 2000 and 2014. Between 2015 and 2023, there is a change in U.S. monetary policy, which leads to a weakening of the negative price correlation between gold and the U.S. dollar, but U.S. dollar still with the negative correlation with oil remaining weak. These results suggest that buying gold is the best way to protect your assets in times of financial crisis or market instability, but the US dollar and oil can change in price due to macroeconomic and political factors. To some extent these data provide a reference value for investment in the coming year.

Oil Price Uncertainty and Consumer Sentiment in Advanced Economies

How does oil price uncertainty affect consumer sentiment in advanced economies? Is the response of consumer sentiment to exogenous positive and negative oil price shocks symmetric or asymmetric? Motivated to answer these questions, this paper provides a comprehensive examination of the effects of real oil price shocks on consumer sentiment in the G7 economies in the context of two classes of empirical models. With the application of a bivariate structural GARCH-in-Mean VAR model we find that (in general) oil price uncertainty has a negative and statistically significant effect on consumer sentiment in the G7 countries. Moreover, using a test of symmetry, we find that the relationship between oil prices and consumer sentiment is in general asymmetric. JEL Classification: C32, D12, Q43, O57

All (economic) politics is local: Voting responses to localized price shocks during the great recession

AbstractThe connection between individual and macroeconomic conditions and voting behavior is well‐established. We contribute to the less resolved “spatial gap” in the literature that centers on how the localized economic conditions of where voters live influence their likelihood to vote. We test how space mediates the tension between voter mobilization and withdrawal in the face of economic shocks. We consider a scenario, the Great Recession, where economic shocks were quite localized and sudden, and compile an extensive dataset of all registered voters in the four‐county Tampa metropolitan area between 2006 and 2015. Using sales prices and property characteristics from the tax assessor rolls, we estimate a neighborhood‐level shock to housing values induced by the Great Recession. Results show that when we do not account for local neighborhood variation, the Great Recession is associated with a significant decrease in voter turnout. However, when we account for localized economic shocks, we find that residents in neighborhoods with negative price shocks were more likely to vote after the Recession, especially in non‐local elections. In addition, the propensity to vote increases with the size of the negative price shock. There is some evidence that variation at the neighborhood level matters more than voter‐level heterogeneity. The positive voting response is most profound in predominantly Black neighborhoods, and, to a lesser extent, in predominantly Hispanic and the lowest income neighborhoods. Increases in the propensity to vote are robust to models controlling for baseline economic vulnerabilities, such as localized unemployment, the weakness of the local housing market and exposure to sectors hit hardest by the Recession. The results indicate that dramatic and sudden changes in localized economic conditions can drive voting behavior, and in ways that are distinct from macroeconomic drivers. In addition, the housing asset channel appears to be a powerful one, which can induce significant voting responses at the national level apart from other localized economic drivers, especially among homeowners.

FROM CALENDAR TIME TO BUSINESS TIME: THE CASE OF COMMODITY MARKETS

We address the problem of modeling commodity forward curves, while preserving empirical features observed in commodity markets. By letting a commodity market to “ live” in the tempo of a business rather than calendar clock, we create a model with a rich but realistic set of features, such as stochastic volatility, stochastic rate of mean reversion and various shapes of forward curves such as backwardation and contango. The model, when applied to extensive historical datasets of crude oil and natural gas forward curves, shows a remarkably good fit to the observed futures prices, also in periods of high volatility and negative prices. The model is developed in such a way that it can be used for a wide variety of applications, ranging from exotic derivatives pricing to risk management of commodity portfolios.

Negative crude oil prices: Supply chain disruptions and strategic lessons

Negative crude oil prices: Supply chain disruptions and strategic lessons

Unraveling the effect of electricity price on electric vehicle charging behavior: A case study in Shenzhen, China

Estimating price elasticity of demand for electric vehicle charging contributes to the accurate determination of charging price, thereby improving electric vehicle adoption and energy sustainability. However, few studies have studied the impact of electricity price on electric vehicle charging behavior, especially the demand spillover effect caused by price fluctuations. To fill the gaps, on a citywide dataset of public charging piles in Shenzhen, China, first, correlation coefficients and hypothesis tests are used to determine the relationship between charging demand and price. A learning model incorporating two-layer graph attention, temporal pattern attention, and knowledge-embedded meta-learning is developed for accurate spatio-temporal regression. Impulse response analysis is conducted to unravel several noteworthy phenomena: (1) public charging demand is inelastic to electricity price, with an average elasticity of −0.76, and distinction between different functional areas and times is revealed; (2) negative price impulses marginally change the elasticity, while positive ones make electric vehicle charging users more price sensitive, and (3) the spillover effects caused by price increases and decreases bring 89.48% and 53.88% of its local demand changes to neighbors, respectively, with a scope of 3.45 kilometer. These findings provide policy implications for promoting electric vehicle charging to facilitate renewable energy transition.

Electricity contract design and wholesale market outcomes in Australia's National Electricity Market

AbstractThe emergence of variable renewable energy (VRE) technologies has created a range of different energy contracting techniques. Within Australia's National Electricity Market (NEM), Run‐of‐Plant (RoP) Power Purchase Agreements (PPAs) became the most common form of contract with purchasers of wind and solar energy agreeing to pay a fixed price for energy irrespective of when it is produced and, therefore, its actual value to the market. In November 2023, the Commonwealth Government adopted a 32 GW RoP PPA Contract‐for‐Difference (CfD) underwriting policy that aims to effectively shield the generator from market price risk. This article discusses different contract structures and their impact on participant behaviour during periods of material oversupply and negative prices. We find that embedded solar PV exports into the distribution network, which are not required to dynamically participate in the wholesale market, have increased wholesale energy supply, enabling profit maximising vertically integrated renewable firms to drive prices lower in a manner that partially strands the output of RoP PPA CfD generators with a $0/MWh price floor. A key conclusion from our analysis is that requiring embedded solar PV to effectively participate in the wholesale market appears to be a pre‐condition for the efficacy of government‐initiated RoP PPA CfDs.

Lesson from Crude Oil Treasure Failure in 2020

After the 2020 pandemic, the Chicago Mercantile Exchange (CME) changed its trading rules, allowing the negative oil price mechanism in the futures market. That same month, Bank of China's (BOC) "Crude Oil Bao" investment product brought huge losses to investors, exposing the product's risk management flaws. The purpose of this report is to conduct a comprehensive study of the factors that led to the losses suffered by Chinese investors in international crude oil product trading. It delves into the operational dynamics of these financial industry institutions, as well as the perspectives of Chinese banks and retail investors affected by the incident. Finally, recommendations are made to strengthen risk management measures in response to events such as the Crude Oil Treasure, with the aim of helping commercial banks to improve their product design methodologies. The article provides valuable insights into understanding financial product failures and offers guidance on mitigating risk.

Dynamic Asset Pricing in a Unified Bachelier–Black–Scholes–Merton Model

We present a unified, market-complete model that integrates both Bachelier and Black–Scholes–Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that experiences the possibility of negative security prices or riskless rates. Unlike the classical Black–Scholes–Merton, we show that option pricing in the unified model differs depending on whether the replicating, self-financing portfolio uses riskless bonds or a single riskless bank account. We derive option price formulas and extend our analysis to the term structure of interest rates by deriving the pricing of zero-coupon bonds, forward contracts, and futures contracts. We identify a necessary condition for the unified model to support a perpetual derivative. Discrete binomial pricing under the unified model is also developed. In every scenario analyzed, we show that the unified model simplifies to the standard Black–Scholes–Merton pricing under specific limits and provides pricing in the Bachelier model limit. We note that the Bachelier limit within the unified model allows for positive riskless rates. The unified model prompts us to speculate on the possibility of a mixed multiplicative and additive deflator model for risk-neutral option pricing.

Do Investors Value Workforce Gender Diversity?

We examine whether investors value workforce gender diversity. Consistent with the view that investors believe workforce gender diversity can be valuable in major firms, we use event studies to demonstrate that U.S. technology firms and financial firms experience more positive stock price reactions when it is revealed that they have relatively higher (versus lower) workforce gender diversity numbers. For instance, we find that Google’s revelation of relatively low workforce gender diversity numbers triggered a negative stock price reaction, whereas eBay’s revelation of relatively high workforce gender diversity numbers triggered a positive stock price reaction. These stock price reactions are both economically and statistically significant; for example, we estimate that if a technology firm had revealed gender diversity numbers that were one standard deviation higher, its market valuation would have increased by $1.11 billion. Corroborating this plausibly causal field evidence, we also find positive investor reactions to workforce gender diversity in randomized experiments using Prolific participants with investing experience; these reactions seem to be underpinned by investors’ beliefs about potential upsides of diversity for the firm (e.g., reduced legal risks; increased creativity) but not by investors’ beliefs about potential downsides of diversity for the firm (e.g., increased conflict). Our findings highlight the importance of understanding investors’ intuitions or beliefs about major organizational phenomena such as workforce gender diversity. Our results also point toward a new type of business case for diversity, driven by investors: if major firms had more workforce gender diversity, investors may “reward” them with substantially higher valuations. Funding: This research is supported by NUS (National University of Singapore) Startup Grant WBS A-0003900-00-00 to D. P. Daniels.

The value of green and blue space: Walkability and house prices

Urban green and blue spaces are important amenities within highly urbanised areas which offer social, economic and ecological benefits and provide a number of valuable direct and indirect ecosystem of services to surrounding land uses, urban households integral to sustainable urban development. Existing research has revealed that green and blue spaces are not uniform environmental amenities, but rather a set of distinct goods comprising aesthetic and hydro-morphological characteristics therefore which can influence property values. Consequently, the purpose of this study is to examine the heterogeneity of green and blue spaces using 4985 sales transactions applying quantile regression to investigate the proximity effects of these urban amenities on property prices within the Belfast Metropolitan area, Northern Ireland. The findings show premiums for green features range between 3.0 % and 3.6 %, with blue space proximity to the coastline and lakes commanding premiums of 7.3 % and 5.3 %. Conversely, walking distance to large rivers shows a negative pricing effect of 3.8 %. The results further reveal some evidence of distance decay effects with proximity for green and blue space amenities. The quantile findings show empirical evidence of a U-shape relationship for a number of the green space amenities, indicating that lower and higher priced houses value proximity to these urban amenities differently. For urban blue spaces, the findings reveal that living near to a lake or the coastline observes larger premiums for higher priced properties. Moreover, the highest priced dwellings exhibit a higher negative pricing effect with walkability to urban rivers than those in the lowest priced properties. Overall, the findings provide empirical evidence to inform urban design and planning in line with sustainable development goals and biodiversity strategies for inclusive, and accessible public spaces within cities.

A Novel Thermally Integrated CO2-Carnot Battery (TI-PTES) utilizing Cold Thermal Storage

Abstract The growing integration of renewable energy sources in the energy grid presents intermittency and negative pricing challenges, necessitating large-scale energy storage solutions. Pumped Thermal Energy Storage (PTES) can address these issues by storing and delivering substantial energy whenever required. High-temperature heat pump development is crucial to deploying PTES for storing heat at sink temperatures that are well above the ambient temperature(>450°C) to ensure a reasonable round-trip efficiency(RTE). Currently, however, it is not a technological possibility for heat pumps to achieve these temperatures even with the support of freely available heat (200°C to 400°C) as source temperatures. This study explores a potential layout of the TI-PTES system that exploits commercially available equipment by storing heat below the ambient temperature while still being able to utilize the freely available heat source(Solar, Waste heat, biomass, etc.) to support the overall RTE. The charging phase employs a well-established CO2-refrigeration cycle to accumulate energy below the ambient temperature in cold thermal storage. While the discharging phase runs a trans-critical CO2 power cycle between the freely available heat source and the cold thermal storage. Overall, offering a practically implementable model for the PTES system with market-available components. The study investigates the design of this innovative system presenting the relevance of different operating and machine parameters as well as the contribution of freely available heat sources to the overall performance. Finally benchmarking the technology with other long-duration energy storages.

Coal price shocks and economic growth: A province-level study of China

Coal is the predominant energy source in China and exerts a significant influence on China's economic growth. This paper uses panel data to examine the impact of coal price shocks, which are decomposed into different types using the S-VAR method, on provincial economic growth in China from 2007 to 2021. Our results show that: (1) The impact of coal price shocks driven by the contemporaneous supply on economic growth is most significant. (2) The difference of the elasticity of GDP to coal prices becomes explicit when we differentiate the exporting and importing provinces. (3) Furthermore, we differentiate positive and negative coal price shocks and observe asymmetric impact pathways, which are mainly driven by exporters. Overall, our research proves the critical effect of coal prices on economic growth, especially for coal-exporting provinces. The economic impact of coal phase-out in China should be considered discreetly.

Space solar power project and a theoretically performable solar energy policy with some proposed improvement measures for energy transition in the future

ABSTRACT For the renewable energies (REs), solar power generation is currently the most common. Some countries are currently competing to develop Space Solar Power (SSP) projects, hoping to take the lead in this race to obtain energy from space with high conversion efficiency. In Taiwan, the SSP generation project is expected to cost US$4 billion in research and development in the next five years, and subsequent costs will be astronomical. From an energy management perspective, these proposed improvement measures will be powerful to improve the effectiveness of generating electricity for the SSP system and the solar panels on the ground, so that obtained energy from them can be integrated into an integrated energy (IE), as well as corresponding recycling measures and a reliable energy storage system (ESS) are used. This ESS can store much solar energy to avoid the phenomenon of duck curve and negative electricity prices. Therefore, combing with the concept of the IE, there is a theoretically performable solar energy policy for energy transition in the future. However, in Taiwan, such energy transition using the REs concerns must be considered not only in terms of energy availability at an affordable price, but also from a political and social perspective.

Dynamic optimal allocation of energy storage systems integrated within photovoltaic based on a dual timescale dynamics model

Energy storage systems (ESSs) operate as independent market participants and collaborate with photovoltaic (PV) generation units to enhance the flexible power supply capabilities of PV units. However, the dynamic variations in the profitability of ESSs in the electricity market are yet to be fully understood. This study introduces a dual-timescale dynamics model that integrates a spot market clearing (SMC) model into a system dynamics (SD) model to investigate the profit-aware capacity growth of ESSs and compares the profitability of independent energy storage systems (IESSs) with that of an ESS integrated within a PV (PV-ESS). Furthermore, this study aims to ascertain the optimal allocation of the PV-ESS. First, SD and SMC models were set up. Second, the SMC model simulated on an hourly timescale was incorporated into the SD model as a subsystem, a dual-timescale model was constructed. Finally, a development simulation and profitability analysis was conducted from 2022 to 2040 to reveal the dynamic optimal range of PV-ESS allocation. Additionally, negative electricity prices were considered during clearing processes. The simulation results revealed differences in profitability and capacity growth between IESS and PV-ESS, helping grid investors and policymakers to determine the boundaries of ESSs and dynamic optimal allocation of PV-ESSs.

The Impact of the COVID-19 Pandemic on metal, mining, and allied sectors in the Indian Stock Market

The paper investigates the effect of the first and second waves of COVID-19 on metal, mining, and its associated sectors stocks in India. Furthermore, the paper explores how the share price of the Indian metal, mining, and allied sectors is impacted and how it differs from the rest of the market. We also compare the effect of the pandemic waves on share prices related to metal, mining, and associated sectors in India during the study period, which ranges from January 2020 to December 2021. The share prices are collected from CMIE prowess for the sample firms. We use event study methodology to explore the impact of the different waves on the above-mentioned sectors. The finding exhibits that the first wave of the pandemic was more extreme in terms of the adverse price reaction than the second wave of the pandemic in the short term in the first five days. In the first wave, a more negative impact was on the Nifty50 index than the metal index. The firms in the metal and allied sectors experienced more negative price reactions than the metal index on the announcement of the lockdown event in the first wave. In the second wave, the impact was less than experienced by the firms in the first wave. We present the comparative empirical findings in daily and period-wise frequency to understand the effect of the 1st and 2nd waves of the pandemic on metal, mining, and its associated sectors in India. Our paper will contribute to the literature on extreme events and assist different stakeholders.

Young Consumers’ Price Perceptions in Purchasing Foods: Evidence from Greece

The recent consecutive economic and social crises impose sustainable “from farm to fork” food chain management to feed the global population. In this study, we investigated the price perceptions of young consumers (Gen Z) in purchasing foods in Greece to find out the determinants ensuring sustainable, future food consumption. We used eight overall price perception determinants, five with negative roles, namely value and price consciousness, coupon and sales proneness, and price mavenism, and three with positive roles, namely price–quality, price–value, and prestige–sensitivity for the formation of the study’s questionnaire. A total of 514 students (Gen Z, 85%) answered the questionnaire, promoted through the Google platform during September and October 2023. The data were analyzed with statistical tools, combining cross and chi-square tests. Between the negative determinants, the “value consciousness” price perceptions (71.02%) were the most important parameters in purchasing food, followed by “price consciousness” (55.02%) parameters. “Coupon proneness”, 48.4%, and “sales proneness”, 49%, were equally lower, while “price mavenism” parameters were minimally preferred by only 26.4% of the participants. Participants exhibited a major preference for the “value to price” interconnection (66.7%), such as good value for money, value exceeding a product’s price, and overvalued low-priced foods, while their preference for the “quality to price” interconnection was significantly lower (48.8%), such as in terms of getting what you pay for, more money for better quality, and priced, quality foods. The “prestige–sensitivity” price perception was outside of their preferences in terms of food purchasing (only 7.1%). Our findings indicate that young consumers (Gen Z) pay more attention to the values of negative and positive parameters concerning price perceptions when purchasing food rather than quality, coupons and sales, low prices, and mavenism, or even the prestige of the foods. This means that value issues such as the perceived environmental impact (green value), the climate crisis, the social signaling potential, and others are significant concerns, including their price perceptions for food purchases.

P2M systems based on proton-conducting solid oxide cells: Future prospects and costs of renewable methanol production

As consequence of the transition towards sustainable energy sources, the future production of liquid energy carriers (e.g. methanol) via H2 supply pathways utilizing water electrolyzers (power-to-liquid) will most likely be based on fluctuating grid electricity or islanded renewable inputs. As a result, these production processes are subject to fluctuating operating conditions and varying production capacities, ultimately leading to uncertainties with respect to their process economics and profitability. Therefore, the impact of different electricity supply-side scenarios (static grid and intermittent grid or renewable supply) on the production economics of power-to-liquid processes needs to be assessed thoroughly for the upcoming decades. Methanol is considered as an essential base chemical which is widely known for its versatility and broad potential use contexts in future chemical industries and energy storage applications. Methanol production pathways powered by renewable electricity sources, also known as power-to-methanol processes, are characterized by low specific life-cycle emissions and are therefore of paramount interest. One possible renewable process chain features proton-conducting high temperature electrolyzers combined with a direct hydrogenation of CO2. In this paper, a techno-economic forecast study of this process chain is presented and specific production costs of renewable methanol under different electricity supply scenarios are determined and discussed for the years 2030 and 2050. The studies showed that flexible grid-supported scenarios through direct spot-market participation and renewable scenarios based on wind onshore production enable the largest production cost reduction potential in the upcoming decades. Minimum production costs of 740 € t−1MeOH (2030) and 415 € t−1MeOH (2050) are determined for a flexible operation of the system with spot-market participation, benefitting from times of low or even negative electricity prices. Among the renewable production scenarios, islanded power-to-methanol systems coupled to wind onshore plants were identified as the most beneficial configuration with ascertained production costs as low as 820 € t−1MeOH and 353 € t−1MeOH by 2030 and 2050, respectively.

Oil shocks and the transmission of higher-moment information in US industry: Evidence from an asymmetric puzzle

Using a cross-quantilogram approach, this study analyzes the transmission of higher-moment information across US industries with high-frequency (1-min) data. We investigate the effects of oil demand and supply shocks on this transmission, revealing that the impact is asymmetric. Specifically, negative oil price shocks amplify the asymmetric transmission of higher-moment information, whereas positive shocks have the opposite effect. The findings highlight the complexity in information transmission dynamics in response to oil price fluctuations, highlighting the need for policy makers and investors to account for these nuances when assessing risk and making decisions. The results emphasize the critical role of the direction and magnitude of oil prices in shaping the information landscape across industries.