Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Email: changchialin@nchu.edu.tw
Author-Workplace-Name: Department of Applied Economics Department of Finance National Chung Hsing University Taichung, Taiwan.
Author-Name: Michael McAleer
Author-Workplace-Name:
 Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute, Erasmus 
	School of Economics Erasmus University Rotterdam and Tinbergen Institute, The Netherlands and Department of Quantitative 
	Economics Complutense University of Madrid, Spain.
Author-Name: Yanghuiting Wang
Author-Workplace-Name: Institute of Statistics National Tsing Hua University, Taiwan.

Title: Testing co-volatility spillovers for natural gas spot, futures and ETF spot using dynamic conditional covariances
Abstract: There is substantial empirical evidence that energy and financial markets are closely connected. As one of the most 
	widely-used energy resources worldwide, natural gas has a large daily trading volume. In order to hedge the risk of natural 
	gas spot markets, a large number of hedging strategies can be used, especially with the rapid development of natural gas 
	derivatives markets. These hedging instruments include natural gas futures and options, as well as Exchange Traded Fund 
	(ETF) prices that are related to natural gas stock prices. The volatility spillover effect is the delayed effect of a 
	returns shock in one physical, biological or financial asset on the subsequent volatility or co-volatility of another 
	physical, biological or financial asset. Investigating volatility spillovers within and across energy and financial markets 
	is a crucial aspect of constructing optimal dynamic hedging strategies. The paper tests and calculates spillover effects 
	among natural gas spot, futures and ETF markets using the multivariate conditional volatility diagonal BEKK model. The data 
	used include natural gas spot and futures returns data from two major international natural gas derivatives markets, namely 
	NYMEX (USA) and ICE (UK), as well as ETF data of natural gas companies from the stock markets in the USA and UK. The 
	empirical results show that there are significant spillover effects in natural gas spot, futures and ETF markets for both 
	USA and UK. Such a result suggests that both natural gas futures and ETF products within and beyond the country might be 
	considered when constructing optimal dynamic hedging strategies for natural gas spot prices.
Classification-JEL: C58, D53, G13, G31, O13
Keywords: Energy, Natural gas, Spot, Futures, ETF, NYMEX, ICE, Optimal hedging strategy, Covolatility spillovers, Diagonal BEKK.
Length: 56 pages 
Creation-Date: 2016-06
Number: 2016-10
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1610.txt
File-URL: https://eprints.ucm.es/id/eprint/38281/1/1610.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1610