Panel GARCH Research Articles

Domestic and international impacts of rice export restrictions: The recent case of indian non-basmati rice

This study examines the impact of India's export restrictions on domestic retail rice prices using a dynamic panel GARCH model. The findings suggest that export restrictions are not a sufficient condition to lower domestic prices. Export restrictions are associated with lower retail price volatility in the East Zone. Moreover, the international price transmission to a sample of Asian and African economies shows that all countries are vulnerable, but the degree and kinds of vulnerability differ. Rice exporters appear to be the most susceptible as domestic prices increase in these countries. Rice importers are also vulnerable because of price increases, but the increases are less than in countries where the private sector decides on import quantities.

Effects of Industrial Diversity on Economic Stability: A Panel GARCH Process to Predict Economic Stability

Effects of Industrial Diversity on Economic Stability: A Panel GARCH Process to Predict Economic Stability

Commonality in BRICS stock markets’ reaction to global economic policy uncertainty: Evidence from a panel GARCH model with cross sectional dependence

The rapid growth of BRICS has increasingly integrated their markets into the global economy. Thus, making their financial markets more vulnerable to external shocks. This study examines BRICS stock markets’ response to global economic policy uncertainty using a panel GARCH model. The results show that global economic policy uncertainty significantly raises volatility with homogeneous response across the markets. The findings also suggests that COVID-19 has amplified the adverse impact of the uncertainties on prices and volatility. One major implication of the findings is that the BRICS can develop a joint policy for mitigating policy uncertainties spillovers.

Capital‐flow volatility in emerging markets: A panel GARCH approach

AbstractThis study analyzes the role of push–pull factors on the level, volatility and comovement of capital flows in emerging markets (EMs). Taking the commonality of capital flows into account, we employ the panel Generalized Autoregressive Conditional Heteroscedasticity model developed by Cermeño and Grier for 16 EMs. This method not only accounts for country‐specific heterogeneity and cross‐section dependence but also allows the examination of the sources of the level, volatility and comovement of capital flows in a single step. The results show that domestic factors explain two‐thirds of the variation in net capital‐flow volatility. While both global and domestic factors, with the prominent ones being global risks and domestic economic growth, influence the comovement, their impacts somewhat vary by the types of capital flows.

DAILY VOLATILITY ANALYSIS OF BIST 100 CONSTITUENTS BETWEEN 2018-2020

The Turkish economy has experienced two important shocks in the recent past. The first is a currency shock which occurred in August 2018. A second, substantially more impactful, shock is the COVID-19 pandemic, which began in early 2020 and is still in progress. An interesting question from the perspectives of both policy makers and practitioners is whether significant changes in key economic and financial variables have been observed in the period marked by these two shocks. We investigate this question for the volatility of the daily returns on BIST 100 constituent equities, using a novel panel GARCH modelling approach. We find that during the periods associated with the two shocks, the stock market volatility has increase substantially. Importantly, this increase has been greater and more persistent during the pandemic period. Moreover, our analysis of sector-specific volatilities also reveals that this period of two shocks has witnessed a uniform increase in the average volatilities of all sectors, compared to the period before.

Cross-border capital flows and return dynamics in emerging stock markets: Relative roles of equity and debt flows

This paper examines the effect of cross-border capital flows on financial markets by focusing on the composition of flows, viz. equity and debt flows, and its relative effect on emerging stock market returns and volatility. Using a panel GARCH approach on nine emerging market economies, we find that both equity and debt flows possess incremental information over stock market returns and volatility that is not captured by aggregate capital market risk factors. While the explanatory power of debt flows is relatively stronger and more robust, even after controlling for world market return, global risk, bank credit flows and country-level liquidity, we find that equity flows assume significant explanatory power, particularly during the post-global financial crisis period. The findings overall suggest that emerging stock markets have become particularly sensitive to cross-border capital flows following the great credit crunch, with significant effects on idiosyncratic risks at the country level, while accounting for the composition of portfolio flows can add further explanatory power to stock market models.

Revisiting the link between output growth and volatility: panel GARCH analysis

This paper explores the link between output growth and volatility using several macroeconomic variables for a panel of countries for the period of 1971–2014. Using an augmented panel GARCH-M model, we allow for the first time in the literature for independent variables to be part of the conditional equations. The paper is also novel in terms of encompassing an extensive number of countries and country groups. The relationship between output growth and volatility is observed to vary between different country groups. Empirical findings regarding the effect of exogeneous variables suggest that trade openness contributes to economic growth and institutional quality lowers economic volatility.

FINANCIAL VULNERABILITY AND INCOME INEQUALITY: NEW EVIDENCE FROM OECD COUNTRIES

This study explores, for the first time, how financial vulnerability affects incomeinequality across OECD countries, from 1990 to 2015. The empirics use a new financialvulnerability index constructed by Adrian and Duarte (2016). Through the methodologyof their modeling approach, panel GARCH and GMM methods, the findings indicatethat financial vulnerability exerts a negative impact on income equality conditions.The results survive certain definitions of income inequality and corruption, whilethey highlight the importance of financial stability conditions, with potential furtherrepercussions to the real economy.

Value-at-risk forecasts by dynamic spatial panel GJR-GARCH model for international stock indices portfolio

To provide accurate value-at-risk (VaR) forecasts for the returns of international stock indices portfolio, this paper proposes a dynamic spatial panel with generalized autoregressive conditional heteroscedastic model (DSP-GJR-GARCH). The proposed model considers the spatiotemporal dependence as well as asymmetric volatility of returns, with the theories of spatial econometrics. We construct an economic spatial weight matrix and set part of the initial estimated values as unknown parameters to get more acute of parameter estimations. After that, we compare the proposed model with three closely related models including GARCH, spatiotemporal-AR, dynamic spatial panel GARCH models, with respect to the performances of daily volatility and VaR forecasting. The empirically comparative data involve six composite indices of major countries, namely USA (DJI), German (DAX), France (FCHI), U.K. (ISEQ), Japan (N225) and China (SSE). The comparative computational results show that, since the proposed model considers spatial dependence and time series correlation simultaneously, it could get more accurate prediction of VaR than the three ones. Moreover, the findings reveal that the predictive accuracy of a spatial regressive model can be improved by considering asymmetric volatility in the disturbances. Thus, we can conclude that DSP-GJR-GARCH model performs better than the other three compared models.

Is inflation targeting credible in Asia? A panel GARCH approach

We examine the relationship between inflation targeting and the behavior of the level and volatility of inflation for eight Asian countries over the period 1987–2013. In contrast to existing studies that rely upon time series methods, we employ a novel panel GARCH model that accounts for heterogeneity and interdependence across countries. Our main contribution is to shed new light on the inflation targeting credibility hypothesis based on lower inflation and inflation volatility as well as on the correlation between unanticipated inflation shocks within a panel GARCH framework. We find strong evidence of a reduction in the level of inflation that operates from the impact of actual inflation targets in the Philippines, South Korea and Thailand. We also find that the adoption of inflation targeting helped lower inflation volatility in the Philippines and South Korea. Overall, the results suggest that Asian inflation targeting regimes are more credible in terms of reducing the level of inflation than lowering inflation volatility. There is also evidence that the covariance of inflation shocks among inflation targeting and non-targeting countries tends to increase.

Interest Rates and the Volatility and Correlation of Commodity Prices

We purpose a novel explanation for the observed increase in the correlation of commodity prices over the past decade. In contrast to theories that rely on the increased influence of financial speculators, we show that price correlation can increase as a result of a decline in the interest rate. More generally, we examine the effect of interest rates on the volatility and correlation of commodity prices, theoretically through the framework of Deaton and Laroque (1992) and empirically via a panel GARCH model. In theory, we show that lower interest rates decrease the volatility of prices, as lower inventory costs promote the smoothing of transient shocks, and can increase price correlation if common shocks are more persistent than idiosyncratic shocks. Empirically, as predicted by theory, we find that price volatility attributable to transitory shocks declines with interest rates, while, for many commodity pairs, price correlation increases as interest rates decline.

INTEREST RATES AND THE VOLATILITY AND CORRELATION OF COMMODITY PRICES

We propose a novel explanation for the observed increase in the correlation of commodity prices over the past decade. In contrast to theories that rely on the increased influence of financial speculators, we examine the effect of interest rates on the volatility and correlation of commodity prices via a panel GARCH model. In theory, lower interest rates decrease the volatility of prices, as lower inventory costs promote the smoothing of transient shocks, and increase price correlation if common shocks are more persistent than idiosyncratic shocks. Empirically, we find that price volatility attributable to transitory shocks declines with interest rates, whereas particularly for metals prices, price correlation increases as interest rates decline.

Stock market uncertainty and interest rate behaviour: a panel GARCH approach

ABSTRACTUsing a dynamic panel GARCH model for Asian countries, we find that interest rates are significantly lower when stock market uncertainty is high. Evidence of a positive relationship between stock market uncertainty and interest rate volatility is also provided.

Multi-Futures Hedging Strategy Based on Markov Regime-Switching Panel GARCH Model

This paper first develops a new Markov regime-switching panel GARCH model (MSPG) for multi-futures hedging, which has two merits: First, the panel GARCH model is more parsimonious than multivariate GARCH model. Secondly, the MSPG model allowing for regime shifts which voids the spurious volatility persistence problem. In this article, two-state MSPG model is applied to study the multi-futures hedging, and the comparison of hedging performance with pure panel GARCH is made, which indicates that MSPG model outperforms pure panel GARCH model by superior hedging effectiveness.

Price transmission and volatility spillovers in Asian rice markets: Evidence from MGARCH and panel GARCH models

ABSTRACTThis article examines world rice price transmission and volatility spillovers across six major Asian rice markets over the period 2005-13. In addition to the conventional GARCH models, we use a panel GARCH framework to estimate the spillover effects along with the consideration of heterogeneity and interdependence among countries. Empirical results suggest that changes in the world rice price affected not only the price levels of domestic rice markets but also their conditional variances. Moreover, interdependence across rice markets contributed to a strong spillover of a price shock in one country to another within the region.

Demand uncertainty and capacity utilization in airlines

This paper studies the relationship between demand uncertainty—the key source of excess capacity—and capacity utilization in the US airline industry. We present a simple theoretical model that predicts that lower demand realizations are associated with higher demand volatility. This prediction is strongly supported by the results of estimating a panel GARCH framework that pools unique data on capacity utilization across different flights and over various departure dates. A one unit increase in the standard deviation of unexpected demand decreases capacity utilization by 21 percentage points. The estimation controls for unobserved time-invariant specific characteristics as well as for systematic demand fluctuations.

Demand Uncertainty and Capacity Utilization in Airlines

This paper studies the relationship between demand uncertainty — the key source of excess capacity — and capacity utilization in the U.S. airline industry. We present a simple theoretical model that predicts that lower demand realizations are associated with higher demand volatility. This prediction is strongly supported by the results of estimating a panel GARCH framework that pools unique data on capacity utilization across different flights and over various departure dates. A one unit increase in the standard deviation of unexpected demand decreases capacity utilization by 21 percentage points. The estimation controls for unobserved time-invariant specific characteristics as well as for systematic demand fluctuations.

Interest Rates and the Volatility and Correlation of Commodity Prices

We propose a novel explanation for the observed increase in the correlation of commodity prices over the past decade. In contrast to theories that rely on the increased influence of financial speculators, we show that price correlation can increase as a result of a decline in interest rates. More generally, we examine the effect of interest rates on the volatility and correlation of commodity prices, theoretically through the framework of Deaton and Laroque (1992) and empirically via a panel GARCH model. In theory, we show that lower interest rates decrease the volatility of prices, as lower inventory costs promote the smoothing of transient shocks, and can increase price correlation if common shocks are more persistent than idiosyncratic shocks. Empirically, as predicted by theory, we find that price volatility attributable to transitory shocks declines with interest rates, while, particularly for metals prices, price correlation increases as interest rates decline.

Interest Rates and the Volatility and Correlation of Commodity Prices

We purpose a novel explanation for the observed increase in the correlation of commodity prices over the past decade. In contrast to theories that rely on the increased influence of financial speculators, we show that price correlation can increase as a result of a decline in the interest rate. More generally, we examine the effect of interest rates on the volatility and correlation of commodity prices, theoretically through the framework of Deaton and Laroque (1992) and empirically via a panel GARCH model. In theory, we show that lower interest rates decrease the volatility of prices, as lower inventory costs promote the smoothing of transient shocks, and can increase price correlation if common shocks are more persistent than idiosyncratic shocks. Empirically, as predicted by theory, we find that price volatility attributable to transitory shocks declines with interest rates, while, for many commodity pairs, price correlation increases as interest rates decline.

Structural Break in Persistence of European Stock Markets: Evidence from Panel GARCH Model

Structural Break in Persistence of European Stock Markets: Evidence from Panel GARCH Model