JP Morgan

Winter 2018

April 25, 2019 by

Winter 2018
Vol. 3, No. 2
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	Research Director Report
	Jian Yang, Ph.D., CFA, J.P. Morgan Endowed Research Chair, JPMCC Research Director, and Professor of Finance and Risk Management, University of Colorado Denver Business School This issue’s Research Director Report covers both (a) the highlights of the JPMCC’s 2nd annual international commodities symposium and (b) additional international outreach activities by the JPMCC’s Research Director. The JPMCC’s next high-profile symposium, featuring global commodity thought leaders, is scheduled for August 12 and August 13, 2019 in Denver. We hope to see you there! Read Report Read Conference Brochure
	Contributing Editor’s Letter
	Hilary Till, Solich Scholar, J.P. Morgan Center for Commodities, University of Colorado Denver Business School; and Principal, Premia Research LLC The sixth issue of the Global Commodities Applied Research Digest includes, amongst its articles, such familiar energy themes as (a) the importance of crude oil swing producers and spare capacity; (b) the dramatic changes in the liquefied natural gas markets; and (c) the analysis of renewable power purchase agreements. Along with these themes, we are including an educational special feature on cryptoassets and blockchain. We also congratulate Dr. Jian Yang, the JPMCC’s Research Director, for organizing a very successful conference of global commodity experts in August 2018, and we welcome Dr. Yosef Bonaparte as the newly named Director of the JPMCC, whom in turn is responsible for the day-to-day operations on the JPMCC, including its professional activities. Read Letter
	Research Council Corner
	ECONOMIST’S EDGE Four Ideas to Consider When Analyzing Long-Term Prospects for Oil and Natural Gas By Bluford Putnam, Ph.D., Chief Economist, CME Group and Member of the JPMCC’s Research Council Periodically, analysts and forecasters benefit from spending some time thinking about what might be the most disruptive developments that could materially change the way we analyze markets over a long-term horizon. In this research, we provide a perspective on the developments that may shape oil and natural gas markets as they evolve during the 2020s. Read Article Shaping and Hedging Renewable Power Purchase Agreements By Brock Mosovsky, Ph.D., Director of Operations and Analytics, cQuant.io and Lance Titus, Managing Director, Uniper Global Commodities and Member of both the JPMCC’s Research Council and the GCARD’s Editorial Advisory Board This article is the second in a two-part series on the valuation and risk assessment of renewable Power Purchase Agreements (PPAs). The present paper outlines methodologies for shaping and hedging renewable PPAs, and we discuss the benefits of each of these strategies from both the buyer and seller perspectives. Read Article The Superclasses of Assets Revisited By Robert Greer, Scholar-in-Residence, J.P. Morgan Center for Commodities (JPMCC), University of Colorado Denver Business School and Member of both the JPMCC’s Research Council and the GCARD’s Editorial Advisory Board The three “super asset classes” are Capital Assets, Consumable/Transformable Assets, and Store of Value Assets. This framework can help asset allocators consider the diversification of risk factors that produces more effective portfolios. This framework also contributes to the understanding of how commodity investing fits into comprehensive portfolios. Read Article
	Research Digest Articles
	Just a One-Trick Pony? An Analysis of CTA Risk and Return As summarized by Ana-Maria Fuertes, Ph.D., Professor in Finance and Econometrics, Cass Business School, City, University of London, U.K. and Member of the GCARD’s Editorial Advisory Board This digest article summarizes a co-written paper by the following four Cork University Business School, University College Cork, Ireland researchers: Jason Foran, Ph.D.; Mark Hutchinson, Ph.D.; David McCarthy, Ph.D.; and John O’Brien, Ph.D. Their article examines the ability of alternative-risk-premia products to capture the returns of the commodity trading advisor (CTA) sector. The paper’s empirical analysis indicates that CTAs have return series that cannot be easily replicated through factor investing. Read Article Child Mortality, Commodity Price Volatility and the Resource Curse As summarized by Ana-Maria Fuertes, Ph.D., Professor in Finance and Econometrics, Cass Business School, City, University of London, U.K. and Member of the GCARD’s Editorial Advisory Board This digest article summarizes a research paper by the following three co-authors: Yousef Makhlouf, Ph.D., College of Business Law and Social Sciences, Nottingham Trent University, U.K.; Neil Kellard, Ph.D., Essex Business School and Essex Finance Centre, University of Essex, U.K.; and Dmitri Vinogradov, Ph.D., Adam Smith Business School, University of Glasgow, U.K. Their paper empirically investigates the impact of commodity price movements on child mortality in low and lower-middle income countries. They find that commodity terms-of-trade volatility increases child mortality in highly commodity-dependent importers. They also find that the presence of sound institutions (proxied by democracy) mitigates the harmful impact of commodity price volatility. Read Article
	Contributing Editor's Section
	An Additional Aspect of Whether Futures Contracts Succeed: The Nature of Governmental Intervention By Hilary Till, Solich Scholar, J.P. Morgan Center for Commodities, University of Colorado Denver Business School; and Principal, Premia Research LLC The history of futures regulations reveals four features in determining whether a futures contract can succeed: (a) a contract must have a convincing economic rationale; (b) it is helpful if contracts are viewed as being in the national interest; (c) competition requires regulatory parity among exchanges; and (d) markets can survive even draconian interventions so long as they are short-term. This paper is excerpted from a seminar that was provided by the author for staff at the Shanghai Futures Exchange. Read Article
	Industry Commentaries
	The $200 Billion Annual Value of OPEC’s Spare Capacity to the Global Economy By Adam Sieminski, CFA, President, King Abdullah Petroleum Studies and Research Center (KAPSARC), Saudi Arabia This commentary is based on a KAPSARC research project that resulted in the April 2018 publication of the paper, “OPEC’s Impact on Oil Price Volatility: The Role of Spare Capacity,” in the Energy Journal. This study finds that OPEC’s spare capacity reduces oil price volatility and generates between $170 and $200 billion of annual economic benefits for the global economy. Read Article What are the Factors that are Impacting Global Oil Prices? By Robert McNally, Founder and President, Rapidan Energy Group This paper argues that we are in a new era marked by boom-and-bust oil price swings. Spare capacity has been very tight. This can pose a risk of oil price spikes eventually occurring, given the large number of actual and threatened disruptions present in the oil market. Read Article The New Geopolitics of Natural Gas By Agnia Grigas, Ph.D., Nonresident Senior Fellow, Atlantic Council and Board Member, LITGAS This article reviews how, over the last decade, the transformation of the natural gas markets has ushered in a shift of global geopolitics by the changing relationships between natural gas exporting, importing, and transit states. The article draws from the author’s book of the same title and explores how this energy revolution was driven by the shale boom, the rise of the liquefied natural gas trade, the rise in interconnective gas infrastructure, and growing global demand for natural gas as a cleaner fossil fuel. Read Article
	Special Feature: Cryptoassets and Blockchain
	Download Special Feature Cryptocurrencies, Bitcoin and Blockchain: An Educational Piece on How They Work By Mark Keenan, Managing Director, Global Commodities Strategist and Head of Research for Asia Pacific, Société Générale Corporate & Investment Bank (Singapore) and Member of the GCARD’s Editorial Advisory Board; Michael Haigh, Ph.D., Managing Director and Global Head of Commodities Research, Société Générale (U.S.); David Schenck, Commodities Analyst, Société Générale (U.K.); and Klaus Baader, Global Chief Economist, Société Générale (U.K.) This educational paper is divided into three parts. The first part briefly describes the nascent cryptocurrency market, focusing on the bitcoin system. The second part examines bitcoin’s price behavior from a quantitative perspective, highlighting the low correlation of bitcoin and other cryptocurrencies to other traditional asset classes. The final section provides a complete overview, including definitions and explanations of all the processes and mechanics behind bitcoin and the blockchain. Read Article How Futures Trading Changed Bitcoin Prices By Galina Hale, Ph.D., Research Advisor, Federal Reserve Bank of San Francisco; Arvind Krishnamurthy, Ph.D., The John S. Osterweis Professor of Finance, Stanford Graduate School of Business; Marianna Kudlyak, Ph.D., Research Advisor, Federal Reserve Bank of San Francisco; and Patrick Shultz, Doctoral Candidate, Wharton School, University of Pennsylvania and Former Research Associate, Federal Reserve Bank of San Francisco Bitcon’s peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset. Read Article Blockchain for Physical Commodity Markets - A Realist's Perspective By Julie Lerner, Chief Executive Officer, PanXchange Regarding the physical commodity markets, this article recommends that blockchain providers consider the following approach. Start with the points of highest pain, like streamlining cumbersome bills of lading. Find a reliable blockchain provider or neutral third party that can understand the idiosyncrasies of the physical supply chain and both the opportunities and limitations of the technology. Coordinate the piloting and the implementation with the industry’s largest players. Blockchain is ultimately an opt-in solution. Build it to their specifications, and they will come, predicts the author. Read Article Interview with Don Wilson, CEO of DRW; and Co-Founder and Board Member, Digital Asset Holdings Mr. Don R. Wilson is the CEO of the principal trading firm, DRW. He is also a co-founder and board member of Digital Asset Holdings, which leverages distributed ledger technology to improve the settlement of financial instruments. Based on his extensive business ventures, Mr. Wilson discusses his views on both cryptoassets and blockchain. Read Interview