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Network Topology of Dynamic Credit Default Swap Curves of Energy Firms and the Role of Oil Shocks

Elie Bouri and Syed Jawad Hussain Shahzad

Year: 2022
Volume: Volume 43
Number: Special issue
DOI: 10.5547/01956574.43.SI1.ebou
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Abstract:
Using network analysis on the connectedness of default factors in a credit default swap (CDS) dataset of U.S. and European energy firms, we provide the first evidence of differences in the shape and dynamics of the interconnectedness of the level, slope, and curvature, representing long-, short- and middle-term default factors, respectively. The interconnectedness of the three default factors increases during the European sovereign debt crisis (ESDC), whereas only the interconnectedness of the level factor increases during the oil price crash, and the interconnectedness of both level and slope factors spikes during COVID19. European firms contribute more to the transmission of long-term and short-term default risk from early 2011 till the beginning of the 2014–2105 oil price crash; afterwards, U.S. firms are major default transmitters despite some periods of parity with European firms. The impacts of oil demand and supply shocks on the various interconnectedness are quantile-dependent and more pronounced in the long term for the credit risk of the energy firms.



Analyzing Commodity Prices in the Context of COVID-19, High Inflation, and the Ukrainian War: An Interview with James Hamilton

Fredj Jawadi

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.fjaw
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Abstract:
The following interview with Prof. James Hamilton was conducted in September 2022 by Dr. Fredj Jawadi with the assistance of Professor Adonis Yatchew in association with the 6th International Workshop on Financial Markets and Nonlinear Dynamics (FMND) held in Paris, France. The interview includes 20 questions related to commodity price dynamics. The aim of the discussion was, first, to help readers gain a better understanding of the factors driving commodity price volatility during the COVID-19 pandemic. Second, we analyzed commodity reactions to the ongoing Ukrainian war. Third, we examined the impact of changes in commodity prices on the economy as a whole and on inflation in particular. Finally, we discussed projections related to the dynamics of commodity prices in the future and the impact on the energy transition process. We hope that this interview will give readers clearer insights into the causes and consequences of commodity price changes and their evolution over time.



Firms and Households during the Pandemic: What Do We Learn from Their Electricity Consumption?

Olympia Bover, Natalia Fabra, Sandra García-Uribe, Aitor Lacuesta, and Roberto Ramos

Year: 2023
Volume: Volume 44
Number: Number 3
DOI: 10.5547/01956574.44.2.obov
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Abstract:
We analyze the impact of the COVID-19 pandemic on electricity consumption patterns. We highlight the importance of decomposing total electricity consumption into consumption by firms and by households to better understand the economic and social impacts of the crisis. While electricity demand by firms has fallen substantially, the demand by households has gone up. In particular, our focus is on Spain where, during the total lockdown, these effects reached –29% and +10% respectively, controlling for temperature and seasonality. While the electricity demand reductions during the second wave were milder, the demand by firms remained 5% below its normal levels. We also document a change in people’s daily routines in response to the stringency of the lockdown measures, as reflected in their hourly electricity consumption patterns.



Reaching New Lows? The Pandemic’s Consequences for Electricity Markets

David Benatia and Samuel Gingras

Year: 2023
Volume: Volume 44
Number: Number 4
DOI: 10.5547/01956574.44.4.dben
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Abstract:
The COVID-19 crisis has disrupted electricity systems worldwide. This article disentangles the effects of the demand reductions, fuel price devaluation, and increased forecast errors on New York's day-ahead and real-time markets by combining machine learning and structural econometrics. From March 2020 to February 2021, statewide demand has decreased by 4.6 TWh (-3%) including 4 TWh (-8%) for New York City alone, and the day-ahead market has depreciated by $250 million (-6%). The real-time market has, however, appreciated by $15 million (+23%) because of abnormally large forecast errors which significantly undermined system efficiency.



Oil Market Stabilization: The Performance of OPEC and Its Allies

Hossa Almutairi, Axel Pierru, and James L. Smith

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.halm
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Abstract:
We examine the influence of OPEC+ on the level and volatility of oil prices. By extending Pierru et al.'s (2018, 2020) modeling framework, we are able to distinguish OPEC's particular role and impact from that of its Allies—those countries who joined with OPEC at the end of 2016 in the attempt to stabilize the market. In addition to corroborating earlier results regarding the impact of OPEC's management of spare capacity prior to 2017, we now present an analysis of how the concerted actions by the larger community of OPEC+ members have affected prices, including during the tumultuous period in which the COVID-19 pandemic took hold. We find that OPEC+'s efforts to stabilize the market reduced price volatility by up to one half, both before and during the pandemic. We attribute most of that reduction to OPEC's own actions whereas the impact of the Allies' efforts was mostly to support the price level. In that vein, OPEC+'s management of spare capacity barely impacted the average price over the pre-pandemic period, but, by countering the price collapse caused by the pandemic demand shock, lifted the average price by $35.70 from May 2020 through August 2021.



Systemic Risk in the Global Energy Sector: Structure, Determinants and Portfolio Management Implications

Syed Jawad Hussain Shahzad, Román Ferrer, Elie Bouri

Year: 2023
Volume: Volume 44
Number: Number 6
DOI: 10.5547/01956574.44.6.ssha
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Abstract:
We examine the dynamics of tail dependence across returns of 105 global energy firms from 26 countries covering the regions of America, Asia Pacific and Europe. A partial correlation-based approach is used to quantify the dependence structure and level of systemic risk under relatively stable and extremely bearish and bullish market conditions. The dependence network of energy stock returns is constructed based on the novel triangulated maximally filtered graph (TMFG). The results reveal a high degree of tail dependence and role played by geographical proximity. The strongest links are found under extreme bearish market conditions. American and European energy firms are more interconnected and contribute more to systemic risk than Asian-Pacific companies. The dependence intensifies during periods of market turmoil, especially during the COVID-19 pandemic. A higher instability in the dependence structure is observed during extremely bearish market circumstances. A simple portfolio trading strategy based on the dependence ranking of energy firms outperforms a naïve equally-weighted buy-and-hold portfolio strategy.





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