The effects of terrorism and war on the oil price–stock index relationship

Kollias, Christos; Kyrtsou, Catherine; Papadamou, Stephanos

doi:10.1016/j.eneco.2013.09.006

Cited by 154 publications

(84 citation statements)

References 53 publications

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“…It is important to understand how the WTI price fluctuates because the value of oil and gas firms are closely linked to these movements. Previous studies have shown significant correlations between the price of oil, stock indices, world events and individual firms' stock price (Filis et al, 2011;Kollias et al, 2013;Reboredo and Rivera-Castro, 2014;Liu, 2014).…”

Section: Correlation With Commodity Indexmentioning

confidence: 97%

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

Casault

Groen

Linton

2015

Oil Gas Sci. Technol. – Rev. IFP Energies nouvelles

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-Oil and gas exploration and production firms have return profiles that are not easily explained by current financial theory -the variation in their market returns is non-Gaussian. In this paper, the nature and underlying reason for these significant deviations from expected behavior are considered. Understanding these differences in financial market behavior is important for a wide range of reasons, including: assessing investments, investor relations, decisions to raise capital, assessment of firm and management performance. We show that using a "thicker tailed" mixture of two normal distributions offers a significantly more accurate model than the traditionally Gaussian approach in describing the behavior of the value of oil and gas firms. This mixture of normal distribution is also more effective in bridging the gap between management theory and practice without the need to introduce complex time-sensitive GARCH and/or jump diffusion dynamics. The mixture distribution is consistent with ambidexterity theory that suggests firms operate in two distinct states driven by the primary focus of the firm: an exploration state with high uncertainty and, an exploitation (or production) state with lower uncertainty. The findings have direct implications on improving the accuracy of real option pricing techniques and futures analysis of risk management. Traditional options pricing models assume that commercial returns from these assets are described by a normal random walk. However, a normal random walk model discounts the possibility of large changes to the marketplace from events such as the discovery of important reserves or the introduction of new technology. The mixture distribution proves to be well suited to inherently describe the unusually large risks and opportunities associated with oil and gas production and exploration. A significance testing study of 554 oil and gas exploration and production firms empirically supports using a mixture distribution grounded in ambidexterity theory to describe the value fluctuations for these firms.Résumé -Élaboration du lien entre l'évaluation de la valeur des entreprises pétrolières et gazières et la théorie de l'ambidextrie avec l'aide d'un mélange de distributions normalesLes entreprises d'exploration et de production pétrolières et gazières ont des profils de rendement qui ne sont pas entièrement expliqués par la théorie financière courante, notamment, la variation de leurs

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Section: Correlation With Commodity Indexmentioning

confidence: 97%

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

Casault

Groen

Linton

2015

Oil Gas Sci. Technol. – Rev. IFP Energies nouvelles

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“…They find that two-thirds of the terrorist attacks considered lead to significant negative impact on at least one stock market and that the Swiss stock market is affected by the highest number of attacks, and the American stock market by the lowest. Kollias et al (2013) study the effects war and terrorism have on the covariance of oil prices and the indices of four major stock markets using the nonlinear BEKK-GARCH model. They find that the covariance between stock and oil returns are affected by war, however terrorist incidents that are one-off unanticipated security shocks cause only comovement between the CAC40, DAX and oil returns is affected and no significant impact is observed in the relationship between the S&P500, FTSE100 and oil returns.…”

Section: Literature Reviewmentioning

confidence: 99%

Investor sentiment and local bias in extreme circumstances: The case of the Blitz

Urquhart

Hudson

2016

Research in International Business and Finance

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Please cite this article as: Urquhart, A., Hudson, R.,Investor sentiment and local bias in extreme circumstances: The case of the Blitz, Research in International Business and Finance (2015), http://dx.doi.org/10. 1016/j.ribaf.2015.09.010 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. The period of the Blitz is very interesting in that one of the world's major financial centres was under regular and severe air attack, as were many other industrial and commercial centres. These conditions provide a unique opportunity to study both investor sentiment and local bias effects in extreme circumstances. We show that negative investor sentiment during the Blitz as a whole was not evident. However major bombings in London generate negative investor sentiment on stock returns while major bombings outside of London generate no negative investor sentiment on stock returns, which is consistent with local bias effects.

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“…Technically speaking, the main advantage of the BEKK-GARCH model is that it guarantees by its construction that the covariance matrices in the system are positive (Engle and Kroner 1995). In addition, the bivariate unrestricted version of the general BEKK(p,q)-GARCH model with p=q=1 is used in order to avoid any serious convergence problems (see, for instance, Bauwens, Laurent, and Rbouts 2006;Kollias, Kyrtsou, and Papadamou 2013;Kollias, Papadamou, and Arvanitis 2013). By assuming Student's t distribution (t), maximum likelihood methodology is used to estimate jointly the parameters of the mean and the variance-covariance equations.…”

Section: The Modelmentioning

confidence: 99%

“…11. For different types of model based on the MGARCH family see, for instance, Kollias, Kyrtsou, and Papadamou (2013), Kollias, Papadamou, and Arvanitis (2013). 12.…”

Section: Notesmentioning

confidence: 99%

The effect of the market-based monetary policy transparency index on inflation and output variability

Papadamou

Arvanitis

2014

International Review of Applied Economics

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This paper examines empirically the effectiveness of the Federal Reserve's policy under different levels of transparency by using a dynamic and continuous market-based index proposed by Kia (2011) on inflation volatility and output volatility. In theory, the more transparent the monetary policy, the less volatile the money market will be with fewer disturbances and thus the more stable will be the economy. First, a bivariate VAR-BEKK-GARCH(1,1) model is estimated for inflation and output variables in the US economy in order to produce conditional variances and covariance over the period October 1982 to December 2011. Second, by incorporating conditional variances and transparency in a VAR model, impulse response functions reveal that after a positive shock in the Federal Reserve's transparency (i.e. market participants consider the Federal Reserve's actions to be more transparent), there is a statistically significant decrease in both inflation volatility and output volatility. Our results reveal the dynamic and crucial role that a central bank's transparency plays in retaining economic stability and assuring the forecasts concerning inflation and economic growth made by the economic units.

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The effects of terrorism and war on the oil price–stock index relationship

Cited by 154 publications

References 53 publications

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

Linking the Value Assessment of Oil and Gas Firms to Ambidexterity Theory Using a Mixture of Normal Distributions

Investor sentiment and local bias in extreme circumstances: The case of the Blitz

The effect of the market-based monetary policy transparency index on inflation and output variability

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