Work detail

Natural Gas Comovement with Other Commodity Markets - A Wavelet Analysis

Author: Mgr. Michal Otradovec
Year: 2016 - summer
Leaders: PhDr. Mgr. Jana Gutiérrez Chvalkovská
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 82
Awards and prizes:
Abstract: This thesis studies the impact of shale gas on commodity and stock markets in the U.S. by
employing wavelet approach and conducting a time-frequency analysis of dynamic
correlations between natural gas and important representatives of commodity markets: crude
oil, coal, corn, wheat, and several indices. It covers the period from 2006 to 2015 and is
performed on daily data.
Our thesis enlarges existing literature on comovement between natural gas with other energy
commodities and stocks using wavelet coherence – a methodology which allows analyzing
comovement among assets not only from a time series perspective but also over different
frequencies. Financialization of natural gas and its involvement in investment portfolios under
changing conditions on the U.S. gas market provide space for examination of gas proper
correlation estimates in respect to other financial assets. Our results reveal natural gas
comovement behaviour with examined commodities during the Financial Crisis. They show
gradual decoupling between gas and crude oil prices in time. To the best of our knowledge we
are the first to address natural gas using wavelet coherence in connection to agricultural
commodities corn and wheat. These commodities together with natural gas are primary
sources for bioethanol production being used in U.S transportation in increasing extent
recently. Our analysis brings important findings to decision makers, especially to short-term
investors, and specifies investment horizon to maximize diversification in the long run.
Findings suggest that natural gas can be used in a well-diversified portfolio during short




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