Work in Progress
Plott, D. (2014) "Volatility Transmissions and Dynamic Correlations between Energy Returns with Applications"
Slides from the Illinois Economics Association (IEA) Annual Meeting 2014
Abstract: Population growth along with the increased development of emerging economies are expanding the production and consumption of energy resources. At the same time, national security issues and environmental concerns place constraints as to the source of energy generation. As a consequence, the dynamics governing energy markets are evolving greatly. The paper asks how news and volatility from one energy market spills over into another energy market's volatility. This question is addressed using daily data comprised of an alternative energy index, technology index, coal, oil, and natural gas futures from 2006 to 2014, using an asymmetric dynamic conditional correlation multivariate GARCH model with a VARMA second moment. First, it is found news "shocks" in one market have little impact, both in magnitude and statistical significance, between markets whereas own-news drives the respective market's volatility. Second, little statistical evidence is found of volatility spilling over between markets, own-volatility effects are strongly supported. On average, a $1 long position in oil can be hedged for 32 cents with a short position in the alternative energy index, 16 cents with a short position in the natural gas futures market, and 37 cents with a short position in the coal futures market.
JEL Classification: G11, G13, Q42
Keywords: Renewable (Clean) Energy; Multivariate GARCH; Oil Prices; Natural Gas Prices; Coal Prices; Dynamic Conditional Correlation; Volatility Spillovers; Asymmetries; Hedging
Slides from the Illinois Economics Association (IEA) Annual Meeting 2014
Abstract: Population growth along with the increased development of emerging economies are expanding the production and consumption of energy resources. At the same time, national security issues and environmental concerns place constraints as to the source of energy generation. As a consequence, the dynamics governing energy markets are evolving greatly. The paper asks how news and volatility from one energy market spills over into another energy market's volatility. This question is addressed using daily data comprised of an alternative energy index, technology index, coal, oil, and natural gas futures from 2006 to 2014, using an asymmetric dynamic conditional correlation multivariate GARCH model with a VARMA second moment. First, it is found news "shocks" in one market have little impact, both in magnitude and statistical significance, between markets whereas own-news drives the respective market's volatility. Second, little statistical evidence is found of volatility spilling over between markets, own-volatility effects are strongly supported. On average, a $1 long position in oil can be hedged for 32 cents with a short position in the alternative energy index, 16 cents with a short position in the natural gas futures market, and 37 cents with a short position in the coal futures market.
JEL Classification: G11, G13, Q42
Keywords: Renewable (Clean) Energy; Multivariate GARCH; Oil Prices; Natural Gas Prices; Coal Prices; Dynamic Conditional Correlation; Volatility Spillovers; Asymmetries; Hedging
Plott, D. (2014) "Rational Bubble Detection in Alternative Energy"