Energy Economics
ISSN: 0140-9883
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  • Abstract of associated article: We study whether simple technical trading strategies enjoying large popularity among practitioners can be employed profitably in the context of hedge portfolios for Crude Oil, Natural Gas, Gasoline and Heating Oil futures. The strategies tested are based on mean-reverting calendar spread portfolios established with dynamic hedge ratios. Entry and exit signals are generated by so-called Bollinger Bands. The trading system is applied to twenty-two years of historical data from 1992 to 2013 for various specifications, taking transaction costs into account. The significance of the results is evaluated with a bootstrap test in which randomly generated orders are compared to orders placed by the trading system. Whereas we find most combinations involving the front-month and second-month futures to be significantly profitable for all commodities tested, the best results for the risk-adjusted Sharpe Ratio are obtained for WTI Crude Oil and Natural Gas, with Sharpe Ratios in excess of 2 for most combinations and a rather smooth performance for all calendar spreads. Based on our results, there is a serious doubt whether energy futures markets can be considered weakly efficient in the short-term.
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  • Abstract of associated article: We examine the key factors driving change in energy use globally over the past four decades. We test for both strong decoupling where economic growth has less effect on energy use as income increases, and weak decoupling where energy use declines overtime in richer countries, ceteris paribus. Our econometric approach is robust to the presence of unit roots, unobserved time effects, and spatial effects. Our key findings are that the growth of per capita energy use has been primarily driven by economic growth, convergence in energy intensity, and weak decoupling. There is no sign of strong decoupling.
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  • Abstract of associated article: We use a long time series of daily data for 682 firms over a period from January, 1990 to December, 2012. Each firm includes 5,772 daily observations. Our sample involves a total of 3,936,504 observations to investigate how U.S. stock returns respond differently to oil price shocks prior to, during, and after a financial crisis. We provide evidence that U.S. stock returns in turn respond positively to the changes in oil prices during and after such a crisis. We use firm-level data to find that positive and negative oil price shocks have asymmetric effects on stock returns during the crisis and after the crisis. Then, we examine whether the effect of an oil price shock on stock returns varies across oil-intensive industries. Within the crisis and post-crisis, our results indicate that stock returns in response to oil price shocks across industries are heterogeneous, and the stock returns of some energy-intensive manufacturing industries respond more positively to oil price shocks compared with less energy-intensive manufacturing industries. We use total assets, total revenue, and the number of employees as proxy variables to measure each firm’s size and then examine whether oil price shocks affect stock returns differently across firm sizes. We find that big firms are the most strongly and negatively influenced by an oil price shock prior to the crisis. On the other hand, our results indicate that an oil price shock in the post-financial crisis period is positively amplified in the case of medium-sized firms.
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  • Abstract of associated article: We reinvestigate the “rockets and feathers” effect between retail gasoline and crude oil prices in a new framework of fractional integration, long-term memory and borderline (non)stationarity. The most frequently used error-correction model is examined in detail and we find that the prices return to their equilibrium value much more slowly than would be typical for the error-correction model. Such dynamics is usually referred to as “the Joseph effect”. The standard procedure is shown to be troublesome and we introduce two new tests to investigate possible asymmetry in the price adjustment to equilibrium under these complicated time series characteristics. On the dataset of seven national gasoline prices, we find no statistically significant asymmetry. The proposed methodology is not limited to the gasoline and crude oil case but it can be utilized for any asymmetric adjustment analysis.
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  • Abstract of associated article: This study analyzes how the substitution of fossil fuels for nuclear power due to the shutdown of nuclear power plants after the Tohoku Earthquake affects electricity consumption and greenhouse gas emissions in Japan. Results indicate that Japan generated 4.3 million metric tons (or 0.3%, with a 95% confidence interval) of additional CO2 emissions in 2011 following the earthquake. The increase in CO2 emissions stemmed from the combined effects of decreased electricity consumption due to energy conservation efforts and the substitution of fossil fuels for nuclear power following the Tohoku Earthquake. Results also show considerable spatial variation in the impacts of the earthquake on net CO2 emissions. A majority of the prefectures (40 of 47 prefectures, or 85%) were predicted to experience higher CO2 emissions after the Tohoku Earthquake while the remaining (7 prefectures) were predicted to experience lower CO2 emissions. Our findings suggest that Japan and countries under similar risks may want to reformulate energy policy by emphasizing utilization of diverse power and energy sources, including more renewable energy production and electricity conservation. The policy reform should also consider spatial variation in the combined effects of reduced reliance on nuclear power and increased CO2 conversion factors.
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  • Abstract of associated article: This paper analyzes the impact of load factor, facility and generator types on the productivity of Korean electric power plants. In order to capture important differences in the effect of load policy on power output, we use a semiparametric smooth coefficient (SPSC) model that allows us to model heterogeneous performances across power plants and over time by allowing underlying technologies to be heterogeneous. The SPSC model accommodates both continuous and discrete covariates. Various specification tests are conducted to assess the performance of the SPSC model. Using a unique generator level panel dataset spanning the period 1995–2006, we find that the impact of load factor, generator and facility types on power generation varies substantially in terms of magnitude and significance across different plant characteristics. The results have strong implications for generation policy in Korea as outlined in this study.
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  • Abstract of associated article: This paper uses Markov-switching models to investigate the impact of oil shocks on real exchange rates for a sample of oil exporting and oil importing countries. This is an important topic to study because an oil shock can affect a country's terms of trade which can affect its competitiveness. We detect significant exchange rate appreciation pressures in oil exporting economies after oil demand shocks. We find limited evidence that oil supply shocks affect exchange rates. Global economic demand shocks affect exchange rates in both oil exporting and importing countries, though there is no systematic pattern of appreciating and depreciating real exchange rates. The results lend support to the presence of regime switching for the effects of oil shocks on real exchange rates.
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  • Abstract of associated article: We assess the real effects of a recent opening of the energy sector in Mexico to private investment. We look at one particular channel, which operates through the change in the structure of electricity generation in favor of cheaper sources of energy, such as natural gas. We look at the potential impact of this structural change on electricity prices and ultimately on manufacturing output using subsector and state-level manufacturing output data. We first document that electricity prices—relative to oil and gas—are more important to the manufacturing sector, with a one-standard deviation reduction in those prices leading to a 2.8% increase in manufacturing output. This elasticity, together with estimated decreases in electricity prices on the back of the reform, could increase manufacturing output by up to 3.6%, and overall real GDP by 0.6%. Larger effects are possible in the long run if increased efficiency in the electricity sector leads to further decreases in electricity prices. There can also be larger effects stemming from output in the services sector which we find to also respond statistically significantly to electricity prices; and from the endogenous response of unit labor costs, which decrease with lower electricity prices.
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  • Abstract of associated article: Although there has been extensive debate in the literature that addresses the impact of urbanization on total energy use, the relative magnitude of each impact channel has not been empirically examined and urbanization's effects on energy transition dynamics in China remains unknown. Using panel datasets at the provincial level from 1986 to 2011, this paper employs dynamic models to investigate both the long-run and short-run elasticities of urbanization on energy intensities and the most significant impact channel is identified. Coal intensity and electricity intensity are also modeled to reveal energy transition dynamics driven by urbanization. A set of newly developed regression techniques, namely well-performed common correlated effects mean group (CCEMG) and augmented mean group (AMG) estimators, are used to treat residual cross-sectional dependence, nonstationary residuals, and unlikely-to-hold homogeneous slope assumptions. The results obtained verify that the net effects of urbanization on overall energy intensity and electricity intensity are statistically positive, with long-run elasticities of 0.14% to 0.37% and 0.23% to 0.29%, respectively, whereas China's urbanization does not significantly increase coal intensity. The fact that short-run elasticities account for a majority of corresponding long-run values indicates that the short-run effect, that is, indirect energy use induced by urban infrastructures is the most significant impact channel of urbanization on energy use in China. An energy transition from high-pollution coal to clean electricity is also present in China, although the fundamental transition to renewable energy is still in its infancy. From a regional perspective, urbanization exerts asymmetric impacts on provincial energy use so that energy policies associated with urbanization should be province-specific. The findings also illustrate that for a panel dataset on regional dimension within large and fast-growing economies such as China, error cross-sectional dependence and residual nonstationarity must be tested and properly treated to avoid size distortion and biased estimators.
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  • Abstract of associated article: This research examines the long-run relationship between the spot oil price and retail and wholesale gasoline prices. Recent research suggests that the response of the retail gasoline price is faster and the size of the change is larger, in magnitude, following a crude oil price increase compared with periods when the crude oil price is falling; however, some recent papers examining potential asymmetries present mixed results. Our results from a common threshold model estimating the adjustment of gasoline prices and the spot oil price suggest a long-run relationship between retail and wholesale gasoline prices and the crude oil price. Further, results here suggest that both retail and wholesale gasoline prices respond symmetrically to an oil price shock in the long run, indicating little market power by gas stations and wholesalers.
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