Business and Management Research News

Nikos

Business and management department head Dr. Nikolaos Antonakakis’ recent, collaborative research has been published in several economics and finance journals. We sat down with him recently to discuss his research and its potential implications.

WVPU: Congratulations on your recent publications. The first article I’d like you to tell us about is “The impact of Euro through time: Exchange rate dynamics under different regimes.” For those of us without a background in finance, what are the practical applications of studying currency in this way?

Dr. Antonakakis:  The decision for a common European currency constitutes a landmark in the history of international financial markets. Despite the fact that the adoption of the Euro entails both advantages and challenges, its unequivocal importance in international finance has sparked ‐ among academics, policy makers and other pundits ‐ keen interest in its potential impact on decision making and macroeconomic policy formulation. The relative strength of the Euro against other major currencies is, of course, of particular importance. In effect, studying Euro’s interaction with other currencies should help attain a better understanding of global economic developments. In this respect, our study is largely motivated by research related to currency interdependence and contagion issues, especially, in the light of the introduction of the Euro. We are mainly interested in the position of the Euro as an international currency. That is to say, in its relative strength and its co‐movements with other major currencies, across time.

WVPU: How would you describe contagion to a layperson?

Dr. Antonakakis: In economics and finance, a contagion effect explains the possibility of spread of economic crisis or boom across countries or regions. This phenomenon may occur both at a domestic level as well as at an international level. The failure of Lehman Brothers as well as the collapse of the housing market in the United States is an example of a domestic contagion that led to the global financial crisis in 2008.

WVPU: Another recently published article concerns the energy sector: “Oil and asset classes implied volatilities: Investment strategies and hedging effectiveness.” Tell us a little bit about this study and its target audience.

Dr. Antonakakis: Since the increased financialisation of the oil market over the last 15 years, a growing literature has emerged examining the time-varying relationship and spillover effects among oil and financial markets. Interestingly enough almost all studies examine solely the oil-stock market nexus, without taking other asset classes, such as commodities and metals, into account, that are widely used by investors in their portfolio diversification strategies. Thus, in this study we attempted to capture the intricate relationships among oil and fourteen asset volatilities, which belong to four different asset classes (stocks, commodities, exchange rates and macroeconomic conditions). The main objective of this study was to determine the optimal hedging strategies and optimal portfolio weights for implied volatility portfolios among the above-mentioned assets. As such our study’s target audience is mainly investors that adopt diversification strategies when forming portfolios that combine oil and other asset classes.

WVPU: This study is largely about hedging – its effects, causes, unintended consequences, etc. What is hedging and why should a person who works outside of the finance sector have a basic understanding of what it is?

Dr. Antonakakis: Hedging is a type of investment intended to reduce the risk of adverse price movements in an asset. Most people have engaged in hedging, whether they know it or not. For instance, when you buy life insurance to support your family in the case of your death, this is a hedge. You pay money in monthly sums for the coverage provided by an insurance company.

WVPU: The final article is perhaps the most ‘inside baseball’ of the three, by which I mean it seems to be about research methods for fellow academics who conduct research in this field. The article is titled “Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions.” The abstract suggests that it builds upon techniques previously conceived by other academics. Maybe you could tell us a little about this study and, perhaps more broadly about how researchers build upon previous studies.

Dr. Antonakakis: Among the three studies, indeed this is the most technical one and, as such, mostly relevant to researchers conducting research in this field. In particular, the main objective of this study is to improve and enhance an already existing methodology in an attempt to capture more accurately the intricate evolution of interrelationships among financial variables. Building upon a very well established empirical methodology of Diebold and Yılmaz (2009, 2012, 2014) who introduced a variety of connectedness measures, we provide a methodological extension and put our framework into practice by investigating dynamic connectedness measures of the four most traded foreign exchange rates. Comparing the results between the existing approach and our proposed methodology there was suggestive evidence of improvement in the analysis by adopting our new enhanced approach. The process of building upon the existing findings in the literature and try to improve them is a typical process in academia among researchers who engage in lengthy conversations of sorts and rely on others’ findings in an attempt to increase the level of understanding in the field.

You can access Dr. Antonakakis’ recently published articles using the direct links provided in the text above.  

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