Market Price Volatility Research Articles

More insurance subsidies for European farmers – is it needed?

In addition to traditional sources of uncertainties, such as market price volatility and animal and plant health-related risks, the impacts of climate change have recently become a major concern in the agricultural sector throughout the world. Insurance has been commonly proposed as a key instrument in farm risk management, and agricultural insurance schemes have become more widespread both in developed and developing countries. We conducted a case study in the UK to investigate farmers’ risk perception and willingness to pay for crop insurance by using contingent valuation method (CVM). Similarly to the experience from developing countries, we found that farmers are less willing to pay for insurance, however they do take actions to reduce their risks. While these results suggest that the provision of premium subsidies to European farmers can be justified; in order to avoid counter-productive policy outcomes, one may consider the introduction of a risk-based approach in agricultural risk management.
 JEL classification: Q14

Much Ado About Making Money: The Impact of Disclosure, News and Rumors Over the Formation of Security Market Prices Over Time

This article develops an agent-based model of security market pricing process, capable to capture main stylised facts. It features a collective market pricing mechanism based upon evolving heterogenous expectations that incorporate signals of security issuer fundamental performance over time. Distinctive signaling sources on this performance correspond to institutional mechanisms of information diffusion. These sources differ by duration (temporary, persistent, and permanent), confidence, and diffusion degree among investors over space and time. Under full and immediate diffusion and balanced reaction by all the investors, the value of these sources should be consistently and timely integrated by the market price process, implying efficient pricing. By relaxing these quite heroic conditions, we assess the impact of distinctive information sources over market price dynamics, through financial systemic properties such as market price volatility, exuberance and errancy, as well as market liquidity. Our simulation analysis shows that transient information shocks can have permanent effects through mismatching reactions and self-reinforcing feedbacks, involving mispricing in both value and timing relative to the efficient market price series. This mispricing depends on both the information diffusion process and the ongoing information confidence mood among investors over space and time. We illustrate our results through paradigmatic cases of stochastic news, before generalising them to autocorrelated news. Our results are further corroborated by robustness checks over the parameter space.

An Empirical Research on Corporate Bond Trading in Indonesia: The Role of Volume and Volatility

We examine the relationship between trading activity and price volatility in Indonesia corporate bond market using 2010-2014 data. We also investigate the role of liquidity and credit quality in this relationship. We find that volume and trading frequency have a positive and significant correlation to bond volatility, which is consistent with information-based model. The results also suggest that liquidity plays an important role in their relationship, in which illiquidity causing stronger relationship between trading volume and price volatility. Credit quality, however, do not have similar effects on volatility where AAA-rated bonds have higher volatility.

Impact of futures trading on volatility of spot market-a case of guar seed

Purpose– Guar Seed crop is ruling the Indian International business mainly due to its application as a drilling fluid in shale energy industry concentrated in the USA. One of the allegations against futures market is its possible role in increasing the volatility of underlying physical market prices. Suspension of guar seed futures contract in 2012 at National Commodity Derivatives Exchange of India (NCDEX)-India, has reignited the controversy and raised an alarm bell to peek into obscure world of Indian commodity derivatives market. Against the backdrop of fiasco in guar futures trading, the purpose of this paper is to investigate whether sudden surge in futures trading volume leads to increase in the volatility of spot market prices.Design/methodology/approach– Guar seed spot returns volatility is modeled as a GARCH (1, 1) process. Futures trading volume and open interest are segregated into expected and unexpected components. The data are analyzed from 2004 to 2011 using Augmented GARCH model to study the contemporaneous relationship between spot volatility and unexpected futures trading activity and Granger Causality test for examining the dynamic relationship between them and ascertaining causality.Findings– Augmented GARCH model reports positive relationship between unexpected futures trading volume (UTV) and spot returns volatility, and, Granger Causality flows from UTV to spot volatility. Therefore, when the level of futures trading volume increases unexpectedly, the volatility of spot prices increases pointing toward the destabilizing impact of futures trading. However, hedger’s activity, represented by open interest is not seen to have any causal/destabilizing impact on spot price volatility of guar seed.Practical implications– The study provides empirical evidence to support the concern of regulators, genuine hedgers and other traders about the presence of excessive speculation and market manipulations perpetrated through futures market that is disturbing the underlying physical market instead of strengthening it by aiding in price discovery and risk mitigation.Originality/value– There are very few studies which have empirically investigated the temporal relation between volume and volatility in Indian agricultural commodity markets. With guar seed as a special case the present study investigates statistically the impact of futures trading on spot price volatility. In light of the findings of the study, the curb imposed on guar seed futures trading in 2012 was justified.

Regenerative Braking of Electric Vehicle with Brushless DC Motor

Given the volatile market prices and impending reduction in fuel supplies, electric vehicles (EV) have drawn increasing attention. The electric motor in EVs is an important component because it functions as an engine during acceleration and as a generator during deceleration or braking. Energy is saved in these processes when the kinetic energy is converted into electrical energy, which is then stored in a storage system by a regenerative braking system (RBS). In terms of highly efficient performance, ideal torque and speed, high-powered density, and cost-effective maintenance, brushless DC (BLDC) motors are preferred. This paper aims to explore and propose a seamless and effective method of RBS for a BLDC motor in an EV. In braking mode, the proposed method change the motor to act as a generator even without any additional converter, ultra-capacitor, or a complex winding-changeover technique. In this mechanism, the energy flows to the DC side. By using MATLAB/SIMULINK, the BLDC motor with speed and current controller is simulated. Accordingly, in the deceleration or braking mode, the motor functions as a generator and transports the power to the DC side. The proposed model is validated in both starting or no-load and load conditions.

Price volatility in the secondary market and bidders’ heterogeneous behavior in Spanish Treasury auctions

We use multi-unit multi-bid common value auction models with private information to draw empirical implications on how bidding behavior in bond auctions is affected by secondary market price volatility, implications that we test using individual bidding data for 88 bond auctions held between 2003 and 2007 by the Spanish Treasury. The main novelty of the paper is that we analyze the effect of volatility in bidders heterogeneous behavior within an auction. We provide evidence that, as the theoretical models predict, the heterogeneity of bidders’ bid shading increases with volatility and that, on average across auctions, bid shading and bidders’ profit also increase with volatility.

Do hog breeds matter? Investigating the price volatility in the Taiwan's auction market

The study analyzes the dynamic differences between the prices of black hogs and white hogs in Taiwan and determines whether these two products should be viewed as homogeneous commodities by analyzing their price volatility. Previous studies have shown that the differences in auction prices stem from the traits of the individual hogs rather than certain breeds demanding a premium because of their superior meat quality. Methodologically, this study utilizes the multivariate GARCH and the constant conditional correlation models to analyze the average daily prices of the two breeds generated by random auction sequences. Data were collected from 1485 observations, from January 2009 to December 2013, of the Miaoli hog auction market of Taiwan. Based on the dissimilarity of price volatility structures and the low correlation factor between the black hogs and white hogs, this study concludes that these two hog breeds should be regarded as heterogeneous products. This conclusion should serve as a reference for the local hog producers when searching for the best economic traits of indigenous breeds in terms of rearing the potential as well as for the stakeholders when developing the breed-specific marketing strategies.

Over-capacity and PKO price volatility in Asian fatty alcohol market

Over-capacity and PKO price volatility in Asian fatty alcohol market

Retraction: The Potential Impact of More Frequent Financial Reporting and Assurance: User, Preparer, and Auditor Assessments

The purpose of this study is to examine some of the potential impacts of more frequent financial reporting and concurrent assurance, as assessed by members of the assurer, preparer, and investor communities. Two hundred and fifteen participants (84 auditors, 30 controllers, 80 investors, as surrogated by MBA students, and 21 sell‐side analysts) took part in an experiment where they received a case situation involving a company that was planning to voluntarily change from quarterly to monthly (daily) external financial statement reporting, without (with) assurance. After reading the case materials, the participants assessed the likely effects of such changes on the decision usefulness of financial statements, quality of earnings, financial reporting behavior, stock market price volatility, analysts' consensus forecasts, and cost of capital. The results indicate that monthly reporting without assurance would significantly enhance the decision usefulness of financial statements, improve the quality of earnin...

The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

We examine the effects of margin changes on futures trading activity, the composition of traders, and market liquidity using an account‐level data set from the Taiwan Futures Exchange. We find that margin increases reduce trading activity for all trader types, which indicates that higher margins increase trading costs. Institutional trading is more sensitive to changes in margin requirements than individual traders. This, in turn, leads to increases in market price volatility and decreases in market liquidity. These results imply that margin requirements are not an effective policy tool for limiting the trading activity of noise speculators to reduce market volatility. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 35:894–915, 2015

The Effects of Margin Changes on the Composition of Traders and Market Liquidity: Evidence from the Taiwan Futures Exchange

We examine the effects of margin changes on futures trading activity, the composition of traders and market liquidity, using an account level data set from the Taiwan Futures Exchange. We find that margin increases reduce trading activity for all trader types, which is consistent with the hypothesis that higher margins increase the costs of trading. Institutional traders are more sensitive to changes in margin requirements than individual traders, because their trading activity decreases significantly more than that of individual traders. This in turn leads to increases in market price volatility and decreases in market liquidity. These results imply that margin requirement is not an effective policy tool in limiting the trading activity of noise speculators to reduce market volatility.

Price Dynamics and Market Volatility: Behavioral Heterogeneity under Switching Trading Strategies on Artificial Financial Market

In recent years, studying stock markets using multi-agent based models has grow into an important research area due to the fact that this line of attack replicates the nature of the financial market where varied traders with a mixture of expectations and diverse points of rationality network with each other through the market. The main aim of this paper is to include selected finding from behavioral finance into agent model hypothesis. In particular we revise the switching of the trading strategies such as the switching between, uninformed agents, informed agents, zero-intelligence and switchers traders. More precisely we focus on the relationship concerning switching and the excess volatility of the stock market prices and to addresses the question of why traders switch from one type to another.

Foreign ownership and stock return volatility – Evidence from Vietnam

This paper examines the effects of foreign ownership on the firm-level volatility of stock returns in Vietnam. We use a detailed panel data set of firms listed on the Ho Chi Minh City stock exchange for the period from 2006 to 2012. Employing different econometric estimation techniques for panel data analysis, our empirical results show that firm ownership by foreign investors decreases firm stock price volatility in Vietnam stock market. The result implies the stabilizing role of foreign investors in emerging stock markets and this can be considered as one of the potential benefits of increasing the exposure of domestic stock markets to foreign investors.

Stabilization fund for energy prices to promote renewable energy

The formulation of a Price Stabilization Fund to encourage the development of renewable projects is formulated. It seeks to reduce the risks associated with the volatility of the spot market prices, to facilitate access to project financing. This fund acts as a virtual trader, buying energy to developers of renewable projects, offering a fixed stabilized price in the long-term. In turn, the Fund would sell this energy in the spot market at marginal cost, assuming market risks associated with the price variability. The operation of the Fund is evaluated, seeking to determine under which operative conditions it would be viable, and to what extent it is possible to find or define operating parameters to maximize the energy supported by this instrument.

Uncertainty-averse TRANSCO planning for accommodating renewable energy in CO2 reduction environment

The concern of the environment and energy sustainability requests a crucial target of CO2 abatement and results in a relatively high penetration of renewable energy generation in the transmission system. For maintaining system reliability and security, the transmission company (TRANSCO) has to make strategic planning to handle the uncertainty challenges from the intermittent renewable energy resources. In this paper, a stochastic multi-period multi-objective transmission planning (MPMOTP) model is proposed to reduce correlated uncertainties from renewable energy generation, conventional generation, demand-side variations, market price volatility, and transmission configuration. Three objectives, i.e. social CO2 reduction benefit, energy purchase and network expansion cost and power delivery profit, are optimized simultaneously by a developed two-phase multi-objective particle swarm optimization (MOPSO) method. The feasibility and effectiveness of the proposed uncertainty-averse MPMOTP model have been verified by the IEEE 24-bus test system.

Optimal combination of solar, wind, micro-hydro and diesel systems based on actual seasonal load profiles for a resort island in the South China Sea

This paper proposes multiple optimal combinations of hybrid renewable energy systems for a resort island based on actual generation-side energy auditing, assessment of seasonal renewable energy resources availability versus load profiles, and techno-economic analyses. The resort island selected is Tioman, as it represents the typical energy requirements of many resort islands in the South China Sea. The island relies mainly on diesel fuel for electricity generation. However, diesel is subjected to high and volatile market prices, high operation and maintenance costs, and poses environmental risks. Therefore, to mitigate diesel fuel dependency, an optimal combination of hybrid renewable energy systems is proposed. The project starts with an actual generation-side auditing including the distribution of loads, seasonal load profiles, and types of loads as well as an analysis of local development planning. Subsequently, surveys of available renewable resource potentials such as solar, wind, and hydro were conducted that involved collection and analysis of meteorological data. Furthermore, reconnaissance study for hydro potentials has been based on topographic maps and hydrological studies. Finally, HOMER (Hybrid Optimization Model for Electric Renewable) software was used to perform techno-economic analyses for the hybrid system. Results of the analyses include the optimal system configurations, cost of hybrid system, fuel saving, and CO2 emission reduction.

Западные санкции и российская экономика

The article considers in details the economic sanctions imposed in 2014-2015 against Russian Federation by the governments of USA, EU and some other nations. First of all, the author gives a theoretical and historic background of the problem, in particular, classification of the main types of economic sanctions applied in the world, the issues of their legitimacy and effectiveness, as well as the concrete experiences of the recent decades. On this basis an in-depth analysis of their immediate impact on the Russian economy and its future development is elaborated. Particular attention is paid to the influence of sanctions on the investment situation in the Russian economy. It is concluded that the current sanctions contributed to an increase of the inflation rate, deteriorated the investment prospects and stimulated capital outflow. They promoted depreciation of Ruble and reduction of the Russian international reserves, worsened the conditions for servicing the external debt. Along with sanctions, a strong effect on the state of the Russian economy was produced by the drop in international oil prices. These two factors accelerated the onset of economic recession in this country. However, it is stated that the fundamental factors of ongoing recession lie not in the cooling of political relations with Western governments or in the volatility of market prices but in an unsatisfactory institutional structure of the domestic economy. Respectively, the economic prospects of Russia for the nearest year are evaluated by the author as unfavorable. Further extension of sanctions will lead to further worsening of Russia’s investment attractiveness, braking down of the structural adjustments and technological development. It will also narrow opportunities for the Russian companies in their efforts to establish cooperative relations with the leading foreign counterparts and to integrate into the global value-added chains (VACs). Since the role of transnational production in the world economy is on the increase, the extent of participation in VACs will define the position of the country in the world market. Continuing difficulties in this area will deteriorate long-term prospects of the economic development of Russia. Generally, it is stated that even though the recent sanctions have not played a decisive role in the current recession their influence is quite notable. Most importantly, they brought to surface the fundamental structural problems that hold back a steady economic development of Russia. Acknowledgements. The article has been supported by a grant of the Russian Science Foundation (project № 14-28-00097 “The optimization of Russian foreign investment ties in the context of deteriorating relations with the EU”).

The dynamics between newbuilding ship price volatility and freight volatility in dry bulk shipping market

Dry bulk shipping market is a key element of international trade. Newbuilding vessel prices tend to fluctuate drastically, however the price volatility mechanism and major determinants were neglected, regardless of the abundant research on newbuilding price formation and price determinants. This paper applied the GARCH (1, 1) model to investigate the key determinants of newbuilding vessel price volatility and how freight rate affects it. The empirical results revealed that freight rate volatility is the most important and the positive determinant for newbuilding price volatility in capesize, panamax, handymax and handysize sectors. Shipyard capacity change, exchange rate volatility and shipbuilding cost volatility are key determinants for some vessel types, while secondhand vessel price volatility is not the key determinant for any vessel type. Our findings could help the practitioners better understanding the market dynamics and managing the market risks.

Causality Analysis of Volatility in Exchange Rate and Stock Market Prices: A Case Study of Pakistan

This study attempted to investigate the direction of causation between the volatilities of exchange rate and stock market prices in Pakistan. Monthly time series data of Karachi Stock Exchange prices (KSE-100 Index) and exchange rate of Pakistan (Rupee against US Dollar) is used for the period of January 1992 to February 2013. Philips Perron (PP) unit root test is applied to check the stationarity. PP test results show that all variables were stationary at first difference. GARCH model is applied on each variable to measure the volatility. Then the series of each variable are used for Granger causality analysis. The results of Granger causality test show a bidirectional relationship between the exchange rate volatility and the variability of stock market prices in Pakistan.

Ex-ante Determinants of Volatility in the Crude Oil Market

This paper examines the causes and behavior of price volatility in the US crude oil market. Although crude oil prices are among the most volatile, they have received limited academic scrutiny heretofore. This study shows that (1) the crude oil market is characterized by volatility persistence, (2) a negative shock has more impact on future volatility than an equal positive shock, (3) crude oil volatility is lower at higher prices, (4) OPEC meeting announcements and the Petroleum Status Report releases cause increased volatility, and (5) there is a day-of-the-week pattern in this market. I develop and employ an improved procedure for testing and quantifying the hypothesized volatility determinants within GARCH type model.