Frequency Connectedness of Financial, Commodity, and Forex Markets

• Thesis title in Czech: Rozsah propojení finančních, komoditních a forexových trhů
• Thesis title in English: Frequency Connectedness of Financial, Commodity, and Forex Markets
• English key words: connectedness, forex markets, commodity, financial markets
• Academic year of topic announcement: 2017/2018
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: doc. PhDr. Jozef Baruník, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 28.01.2018
• Date of assignment: 28.01.2018
• Date and time of defence: 16.01.2019 08:30
• Venue of defence: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Date of electronic submission: 03.01.2019
• Date of proceeded defence: 16.01.2019
• Opponents: Mgr. Lukáš Vácha, Ph.D.

References

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• Barro, R. (2006) “Rare disasters and asset markets in the twentieth century,” The Quarterly Journal of Economics, 121, 823-866.

• BARUNÍK, J., KŘEHLÍK, T. (2017): Measuring the frequency dynamics of financial connectedness and systemic risk. Retrieved: https://arxiv.org/pdf/1507.01729.pdf

• Billio, M., Getmansky, M., Lo, A., & Pelizzon, L. (2012). Econometric measures of connectedness and systemic risk in the finance and insurance sectors. Journal of Financial Economics,104, 535–559

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• Diebold, F. X. and K. Yilmaz (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms.Journal of Econometrics 182(1), 119–134.

• Diebold, F. X. and K. Yilmaz (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting 28 (1), 57–66.


• Gonzalo, J. and S. Ng (2001). A systematic framework for analyzing the dynamic effects of permanent and transitory shocks. Journal of Economic Dynamics and Control 25(10), 1527–1546

• Hélyette, G. (2005): Commodities and commodity derivatives: modeling and pricing for agricilturals, metals, and energy. Wiley Finance.

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• Ortu, F., A. Tamoni, and C. Tebaldi (2013). Long-run risk and the persistence of consumption shocks. Review of Financial Studies 26(11), 2876–2915.

• Wray, L. Randall (2008): The commodities market bubble: Money manager capitalism and the financialization of commodities, Public policy brief // Jerome Levy Economics. Institute of Bard College, No. 96, ISBN 978-1-931493-80-2

Preliminary scope of work in English

The connectedness of financial markets opens an area for research and offers space to move from current standard methods and frameworks of connectedness that use classical tools which overlook some properties and provide aggregate information only such as generalized forecast error variance decompositions (GFEVD) used by Diebold and Yilmaz (2012) to more advanced models because shocks propagate on different horizons and our intention is to see the differences and a topic of dynamics of responses to shocks arise. Ortu et al. (2013) argue that formation of preferences brings different horizons and consumption has to response to shocks. Baruník, Křehlík (2018) came with frequency dynamics of connectedness created by different strengths and thus length of the shocks to financial markets. This thesis will apply this frequency connectedness framework to the global most liquid FX markets, commodities and financial markets and will consider the long-, medium-, and short-term frequency responses to shocks. This should uncover potentially new information on frequency connectedness on global liquid financial, commodity, and forex markets.
I will analyze the frequency connectedness of global data from publicly available databases on FX markets, the commodity market and the financial markets such as Yahoo! and Google Finance. As a main material I am going to use the paper Baruník, Křehlík (2018), which deals with the measurement of the frequency connectedness between the financial variables resulting from the heterogeneous frequency response to shocks in the short-, medium-, and long-term and I will use their R-studio code. I am going to test the frequency connectedness theory for the global liquid real world data and how the length and strengths of the shocks are.