INTEGRATION OF ENERGY MARKETS: the case of USA-EU interdependence
Keywords:
energy markets, correlation, cointegration, wavelet coherence
Abstract
Abstract: In the vocabulary of international finance, markets are completely integrated if assets, having the same level of risk, have the same level of expected returns[1]. The current research aims to quantify the integration across markets in the energy sector. In particular we measure the degree of integration between the gas markets of the USA and the EU (represented by UK and Germany), by using commodity data on a nearest-future basis. We employ two classical approaches - rolling sample correlation and cointegration analysis, as well as a novel one - wavelet coherence, so as to uncover relationships in the frequency domain over time. Graphing the phase difference allows us to determine the market leader and the market follower. Our investigation broadly seeks to answer the question whether we can talk about a single global gas market, or the US and UK’s and Germany’s gas markets are more or less local; and whether global economic events such as the Global Financial Crisis bring them closer.[1] An extensive discussion is available in (Bekaert, 1995).
References
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Bachmeier, Lance J., and James M. Griffin, 2006. Testing For Market Integration: Crude Oil, Coal, And Natural Gas. The Energy Journal, 27.2, pp. 55-71. Click, R. W. & Plummer, M. G., 2005. Stock market integration in ASEAN after the Asian financial crisis. Journal of Asian Economics, Volume 16, pp. 5-28. Clingendael International Energy Programme,. Long-Term Gas Import Contracts In Europe. Clingendael International Energy Programme, 2014. Engle, R., 2002. Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business and Economic Statistics, 96(2), pp. 339-50. Engle, R. & Granger, C., 1987. Co-integration and error correction: representation, estimation, and testing. Econometrica, 55(2), pp. 251-76. Jochum, C., Kirchgässner, G. & Platek, M., 1999. A long-run relationship between Eastern European stock markets? Cointegration and the 1997/98 crisis in emerging markets. Weltwirtschaftliches Archiv, 135(3), pp. 454-79. Johansen, S., 1988. Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, Volume 12, pp. 231-54. Johansen, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), pp. 1551-80. Johansen, S., 1995. Identifing restrictions of linear equations with application to simultaneous equations and cointegration. Journal of Econometrics, Volume 69, pp. 111-132. Mjelde, James W., and David A. Bessler, 2009. Market Integration Among Electricity Markets And Their Major Fuel Source Markets. Energy Economics 31(3), pp. 482-491. Neumann, Anne, Boriss Siliverstovs, and Christian von Hirschhausen. Convergence Of European Spot Market Prices For Natural Gas? A Real-Time Analysis Of Market Integration Using The Kalman Filter, 2006. Applied Economics Letters 13(11), pp. 727-732. Papież, Monika, and Sławomir Śmiech, 2015. Dynamic Steam Coal Market Integration: Evidence From Rolling Cointegration Analysis. Energy Economics (51). Siliverstovs, Boriss et al, 2005. International Market Integration For Natural Gas? A Cointegration Analysis Of Prices In Europe, North America And Japan. Energy Economics, 27(4) , pp. 603-615. Vacha, L. & Barunik, J., 2012. Co-movement of energy commodities revisited: Evidence from wavelet coherence analysis. Energy Economics, 34(1), pp. 241-47. Wilmot, Neil A, 2013. Cointegration In The Oil Market Among Regional Blends. International Journal of Energy Economics and Policy 3(4), pp.424-433. Warell, Linda, 2006. Market Integration In The International Coal Industry: A Cointegration Approach. The Energy Journal 27(1), pp. 99-118 Westgaard, Sjur et al., 2011. Cointegration Of ICE Gas Oil And Crude Oil Futures. Energy Economics,33(2), pp. 311-320. Богданова, Б., 2014. Измерване на степента на интеграция между група от фондови пазари. Икономическа мисъл. Стоянов, Б., 2011. Оценка на степента на интеграция на българския пазар на акции с пазарите на акции в държави от еврозоната. Икономически алтернативи, Volume 4, pp. 100-112.
Published
2017-08-16
How to Cite
Ivanova, I., & Bogdanova, B. (2017). INTEGRATION OF ENERGY MARKETS: the case of USA-EU interdependence. Vanguard Scientific Instruments in Management, 11(2). Retrieved from https://vsim-journal.info/index.php?journal=vsim&page=article&op=view&path[]=80
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