Kollias et al (2011) use a non-linear BEKK-GARCH model to see how war and terrorism impact the covariance of the price of oil and four major stock market indices (S&P500, DAX, FTSE100, CAC40). They found that war has a long lasting effect on the covariance, whilst terrorist attacks have a one-off shock to the price of oil, the DAX and the CAC, whilst the S&P500 and the FTSE100 were not significantly affected due to the fact that they are more efficient markets and a deep enough to withstand the consequences of a terrorist attack. Their research proves that war/terrorism events are important to look at when examining the price of oil, which in turn affects certain stock market indices and which would have an impact on the share price of multinational oil companies. The impacts that these events have on oil prices are shown in the graph below. For instance, 9/11 clearly increased the price per barrel of crude oil (EIA, 2014). 9/11 is one of the events being evaluated, and I am interested to see if it impacted this super-major share price significantly. d) How changes in the price of oil affect stock market returns In this sub-section, I will look at how changes in oil prices affect stock market returns with reference to academic papers Ready (2012) found that changes in the supply of oil (which ultimately shifts its supply curve causing price to change) have a big impact on stock markets around the world. Ready explicitly highlights the fact that countries that heavily rely on importing oil saw their stock market returns react to greater extent than other countries. Specifically, he mentions the US stock market as one that was affected more than others, which is in line with statistics that show the USA is in fact the big... ... middle of paper ... ...res risk sensitivity of the security to the market, and Alpha (α), which is the average, unexplained return (that is, return not explained by the market). (Weston et al, 2004). Weston et al state that because the Market Model takes into account risk, it is the most commonly used method for Event Studies in general. MacKinley (1997) agrees with this due to the Market Model’s simplicity (it is a one factor model), its linearity and the limitations of multi factor models, whilst also stating it is an improvement on other models. Other Event Studies of a similar nature to mine like Zevenbergen’s paper (2008) on oil spills impacting the stock price of publically traded oil companies use the Market Model to find AR, CAR, AAR and CAAR of each company in a given period. Therefore, I believe the Market Model will be the best model to use for my proposed Event Study.
For starters a few days before the attack on 9/11, the airlines stocks did go up. Which means the supply and demand was greater. America was making more money, which is good. The airlines that stocks markets went up, were the airlines that were hijacked which than lead to them going bankrupt. Gabi Logan was saying on USA today “ Despite this government-funded measure, several prominent American airlines declared bankruptcy not long after the 9/11 attacks.” Due to bankruptcy more than just money was
The attacks of 9/11 resulted in history’s longest stock market shut down since the 1930s. The New York Stock Exchange remained closed for six days after the attacks. Furthermore, Davis (2011) reports that upon reopening, the New York Stock Exchange fell almost seven hundred points, the biggest one day loss in history. Additionally, Jackson (2008) reports a 14% decline in the Dow Jones, a loss the Dow still felt almost a year later. But, it was American Airlines and United Airlines that experienced the greatest loss. Following the reopening of the stock market, American experienced a 39% decline and United experienced a 42% decline (Davis, 2011). However in face of discouraging numbers, Jackson (2008) reports that the U.S. markets rebounded second only to Japan, showing the great economic resilience of the U.S. While the stock markets present a bleak outlook immediately following the attacks, the financial loss is far from reassuring.
Arguments: America is dependent on other nations for their ability to create energy. The United States is the world’s largest consumer of oil, at 18.49 million barrels of oil per day. And it will continue to be that way for the foreseeable future, considering the next largest customer of oil only consumes about 60% of what the U.S. does. This makes the U.S. vulnerable to any instability that may arise in the energy industry. In 2011, the world’s top three oil companies were Saudi Aramco (12%), National Iranian Oil Company (5%), and China National Petroleum Corp (4%).
of events which I am going to look at to see if there was a single
In 2004, crude oil producers around the world expected a 1.5% growth in the world’s demand for crude oil. The actual growth rate was more than double the projections at 3.3%. This growth was due to rapidly industrializing of foreign countries such as, China and India. Therefore the lack of crude oil affected the supply of gasoline to consumers at the pump.
The main reasons to lost billions of dollars, lost precious lives and lots of damages to the nation were the Stock Market Crashes. On Thursday October 24, 1929 and on Monday October 19, 1987, there was a crash of stock prices on New York stock Exchange. It was a huge crash of stock prices in a single day. Billions of dollars and a number of precious lives were lost. But what we particularly think about Stock Crashes and how does it affect to common lives. The stock markets crashes and its affects are interrelated. The term stock crash came in to English Dictionary around 200 years ago. There was a first stock market crash in the history of economy and in early industrialization era, in the year 1878. It occurred in Wall Street and followed by huge opposition of stock system.
The events that unfolded on September 11th and the days that followed also profoundly effected the stock market. It is the purpose of this paper is to examine what happened to both the Dow Jones Industrial Average and the NASDAQ after September 11th and how it is similar to events such as the bombing of Pearl Harbor, the Oklahoma City bombing, and the Gulf War in terms of how the stock market experienced a blow and bounced back after a while.
The United States has had several scares throughout its history in terms of oil, most turn out to be over exaggerations of a small event. However, these scares highlight a massive issue with the U.S. and that issue is the U.S.’s dependence on foreign oil. Why does it matter that our oil should come from over seas? In a healthy economy this probably wouldn’t be as relevant, but the U.S.’s economy is not exactly healthy at the moment. There are 4 things that I would like to address: what the problem is, how it affects us, what some solutions are, and what solutions I feel are best.
Currently, the most important factor in the rise of gas prices is the increasing cost of crude oil. Unfortunately, the United States has three percent of the world’s oil reserves. (Horsley) In 2009, the United States was third in crude oil production as well as the world’s largest petroleum consumer. (e. I. Administration) Such consumption required and still requires the United States to import petroleum/crude oil from other countries.
Economic instability is perhaps the category that engulfs most states with petroleum-depending economies, including economic giants like Russia. The downfall of these producers is particularly evident given the current and increasing downfall of oil world prices of more than 50% in the last six months. The increase in domestic supply of oil in North America that rendered the United States less dependable on petroleum imports undermined the influence of exporting countries, particularly the leverage that the once powerful tycoons of the OPEC possessed over international trade. These countries can no longer engage in an embargo like in the 1973, for they are even struggling with enormous deficits to meet their citizens’ basic
Capital Asset Pricing Model (CAPM) is an ex ante concept, which is built on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). It enhances the understanding of elements of asset prices, specifically the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where market risk of an asset is associated with the return and risk of the market along with the risk free rate to estimate expected return on an asset (Watson and Head 1998 cited in Laubscher 2002).
The Iraq War is an ongoing war which began with a United State led invasion of Iraq in 2003. This war affected to the world economy, especially, USA who directly war with Iraq. Fear of a possible U.S. led war with Iraq soured investors’ sentiment in U.S. stock market. Furthermore, technology stocks in European market plunged following down results from sector giants Microsoft and IBM stocks fell down (CNN.com). This is because of everyone is negative on Iraq and in combination ...
Mast, Tom R. Over a Barrel: A Simple Guide to the Oil Shortage. Austin: Hayden, 2005. Print.
In conclusion, the supply and demand of oil is a complex issue that depends on several factors. Geopolitical affairs are the major issues that affect supply and demand of oil. Geopolitical factors include wars, uprisings and political inconsistencies in the world. Other factors that influence the demand and supply of oil include market domains, availability of oil, recession and the world GDP. Since 1859, the price of oil has been inconsistent. Despite the fact that oil prices increased and fell, there has been a considerable rising trend in those prices. In most cases, the falling of the price reaches the previous price level. However, increase of prices goes beyond earlier prices. This trend has seen oil prices rise over the years. With this in mind, it is clear that by 2020 the real price of oil will be more than 200 dollars.
Woolworths LTD has commissioned EA partners for auditing their supermarkets chains. Therefore it is important to prepare a risk analysis report to be added in the audit plan in order to identify and analyze possible events that could have an impact in achieving the company’s objectives. The element of risk is embedded in every business, the risk of not achieving the company objective. Risk assessment is important to the effective operations of the company. Risk Assessment is increasingly in demand today because of the increase demand in transparency that revolves around risks. The business is under continuous scrutiny of whether the correct mechanism was in place at the time of the crisis or whether the correct information was delivered and so on. This is why risk assessment has become a part of the business auditing today.