Three essays on commodity markets

Student thesis: Phd


This thesis consists of three papers that analyze the effects of crude oil prices on macroeconomic variables, stock markets, and the behavior of hedgers and speculators when they trade illiquid commodities. The first paper examines the impact of oil price shocks on selected macroeconomic variables. This study is conducted across a sample of twelve countries that include developed countries, developing countries, oil producing countries and oil importing countries. Further, the study focuses on the behavior of oil production and oil imports/exports following these oil price shocks. Our findings suggest that macroeconomic variables of oil producing countries are more resilient to oil supply shocks compared to countries that largely depend on oil imports. The stimulus on industrial production following aggregate demand shocks of countries that are less dependent on imported crude oil decays rapidly, in comparison to the stimulus on industrial production of countries that are largely dependent on imported crude oil. The second paper analyses the impact of oil prices on stock market returns. This study uses present value models to survey the effects of oil prices on stock returns through cash flow and discount rate channels. This paper also looks into the effects of oil prices on cash flow and discount rate betas of the stock market and seventeen industries. We find that using oil market associated variables in the absence of a price-based variable may lead to invalid VAR-based stock return news decomposition to cash flow and discount rate news components. We find evidence that oil market associated variables improve the predictability of real stock returns, especially the recent period of 2000:01-2015:12. These predictor variables also affect both market cash flow and discount rate betas as well as betas of industries such as oil, mining and utilities. The third paper examines the behavior of hedgers and speculators in commodities market when they trade illiquid commodities. This study also points out that using the Amihud measure (Amihud (2002)) as the measure of illiquidity in commodity market could be problematic due to its size bias. In order to handle this potential issue, we decompose the Amihud measure into turnover based Amihud measure and market size following Brennan, Huh and Subrahmanyam (2013). We find that speculators (hedgers) pay an additional premium to buy liquidity (insurance) in illiquid commodities. Further, the paper reports clear evidence of asymmetries of illiquidity effects in bullish and bearish market days.
Date of Award31 Dec 2018
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorIan Garrett (Supervisor) & Sungjun Cho (Supervisor)

Cite this