Download This PaperOil Price Dynamics and Currency-Hedging Behavior: Out-of-sample Appendix
4 Pages Posted: 7 May 2020
Date Written: April 09, 2020
Abstract
Consistent with the original evidence in Komla and Agudze (2019) and as documented in the preceding regressions, we find that, in the period of low oil price regime, the dollar-won basis and crude oil prices exhibit negative comovements, so that marginal increases in oil prices relate to wider (i.e. more negative) dollar-won basis. In fact, on March 19, 2020 when crude oil prices recorded one of the largest increases of around $4 per day in the sample period was the day that the dollar-won basis widened the most, by 97 basis points on a single day. Conversely, on March 20, 2020 when crude oil prices fell by $1.5 was the day that the dollar-basis recorded its largest tightening of over 124 basis points on a single day. These numbers are not just anecdotal, they echo the evidence of a negative connection between the dollar-won basis and crude oil prices when oil prices are in a low or depressed regime as has been the case since the beginning of March 2020.
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