Yuki Toyoshima

Crude oil hedging strategy: new evidence from the data of the financial crisis

This article examines the performance of three multivariate conditional volatility models with respect to crude oil spot and futures returns: the Dynamic Conditional Correlation (DCC) model, Asymmetric Dynamic Conditional Correlation (A-DCC) model and Diagonal Baba-Engle-Kraft-Kroner (Diagonal BEKK) model. Moreover, the article proposes using the time-varying optimal hedge ratio (OHR) to build a hedging strategy in the market, taking advantage of these multivariate conditional volatility models. We employ daily spot and futures data from the West Texas Intermediate (WTI) oil market from 3 January 2007 to 30 December 2011. Variance of portfolios and hedging effectiveness index show that the performance in terms of reducing variance is good in order of A-DCC, DCC and Diagonal-BEKK.

Volatility transmission of swap spreads among the US, Japan and the UK: a cross-correlation function approach

This article analyses volatility transmission across the swap markets of the US, Japan and the UK. The two-step procedure developed by Cheung and Ng (1996) is used to examine causality-in-mean and causality-in-variance among the three countries. The empirical findings indicate the existence of more causality-in-variance patterns during the time of financial crisis than in the normal period that preceded it.

Determinants of interest rate swap spreads in the US: bounds testing approach to cointegration

This article empirically analyses the determinants of US interest rate swap spreads, and makes two key contributions. First, it considers the nonstationarity of time series, which previous studies have not done, and conducts a cointegration test using the bounds testing approach. The empirical results reveal that there exists a cointegration relationship between interest rate swap spreads and four determinants: the corporate bond spread, the slope of the yield curve, the T bill and Eurodollar (TED) spread and yield volatility. Second, it analyses the determinants of swap spreads using the Dynamic Ordinary Least Squares (DOLS). Considering the cointegration relationship, all explanatory variables were significant within the 5% level.

The causal relationships between sovereign CDS premiums for Japan and selected EU countries

In this article, we apply the cross-correlation function approach developed by Hong (2001) in order to investigate how the recent sovereign debt crisis has influenced interrelations between sovereign credit default swap (CDS) premiums for Japan and for Europes major countries. We confirm the existence of a causal linkage between the mean of Japan and those of EU countries except Greece. In addition, this causal linkage has strengthened remarkably since the crisis. Further, we detect a causal linkage in terms of variance between Japan and certain EU countries including Greece.

Panel cointegration analysis of co-movement between interest rate swap and treasury markets

Extending Itos (2009) analysis, this article investigates the co-movement between interest rate swaps and treasury markets by using the panel cointegration tests developed by Maddala and Wu (1999). Empirical results show that there exists a single cointegration relationship between the swap rates and treasury rates for all maturities. The cointegration vector for the 2-, 3- and 4-year maturities is 1, showing that a 1% increase in the treasury rates will lead to a 1% increase in the swap rates. On the other hand, in the 5-, 7- and 10-year maturities, the cointegration vector is found to be more than 1, implying that a 1% increase in the treasury rates will lead to a more than 1% increase in the swap rates. Thus, a rise (decline) in the treasury rates is associated with a rise (decline) in the swap spread.