Dynamic hedging strategy in incomplete market: Evidence from Shanghai fuel oil futures market

Lin, Xiaoqiang; Chen, Qiang; Tang, Zhenpeng

doi:10.1016/j.econmod.2014.03.022

Cited by 4 publications

(4 citation statements)

References 35 publications

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“…The dynamic correlation also plays an important role in the dynamic hedge ratio. Several studies have used the estimates of the VAR-BEKK-GARCH or VAR-BEKK-AGARCH model to calculate time-varying correlations and optimal hedge ratios (Lin et al 2014 ; Lin 2017 ; Klein et al 2018 ; Beneki et al 2019 ; Belhassine 2020 ). Therefore, for robustness purposes, we also calculate time-varying correlations, optimal weights, hedge ratios, and hedging effectiveness using the VAR-BEKK-AGARCH model in this study.…”

Section: Methodsmentioning

confidence: 99%

Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic

Yousaf

Ali

2020

Financ Innov

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Through the application of the VAR-AGARCH model to intra-day data for three cryptocurrencies (Bitcoin, Ethereum, and Litecoin), this study examines the return and volatility spillover between these cryptocurrencies during the pre-COVID-19 period and the COVID-19 period. We also estimate the optimal weights, hedge ratios, and hedging effectiveness during both sample periods. We find that the return spillovers vary across the two periods for the Bitcoin–Ethereum, Bitcoin–Litecoin, and Ethereum–Litecoin pairs. However, the volatility transmissions are found to be different during the two sample periods for the Bitcoin–Ethereum and Bitcoin–Litecoin pairs. The constant conditional correlations between all pairs of cryptocurrencies are observed to be higher during the COVID-19 period compared to the pre-COVID-19 period. Based on optimal weights, investors are advised to decrease their investments (a) in Bitcoin for the portfolios of Bitcoin/Ethereum and Bitcoin/Litecoin and (b) in Ethereum for the portfolios of Ethereum/Litecoin during the COVID-19 period. All hedge ratios are found to be higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. Last, the hedging effectiveness is higher during the COVID-19 period compared to the pre-COVID-19 period. Overall, these findings provide useful information to portfolio managers and policymakers regarding portfolio diversification, hedging, forecasting, and risk management.

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Section: Methodsmentioning

confidence: 99%

Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic

Yousaf

Ali

2020

Financ Innov

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“…Thus, when the futures market is in backwardation, spot and futures returns of crude oil are (also) strongly correlated (Go & Lau, 2017). In this regard, numerous studies have highlighted the role of constant conditional correlation (CCC) (El Hedi Arouri et al, 2011;Go & Lau, 2015;Lien et al, 2002) and DCC (Burdekin & Tao, 2021;Chang et al, 2011;Chunhachinda et al, 2019;Jie et al, 2021;Lien et al, 2002;Lin et al, 2014;Liu et al, 2023;Park & Jei, 2010;Yu et al, 2023) in modeling the conditional variance-covariance process, particularly in the case of the commodity markets. 5 Infrequent pronounced shocks resulting from unanticipated events also exert a significant impact on correlations.…”

Section: Literature Reviewmentioning

confidence: 99%

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

Teo

Chan

2023

Journal of Futures Markets

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This study analyzes the hedging effectiveness of crude oil futures during infectious disease outbreaks in the 21st century. The conditional volatility of crude oil markets experienced a greater shock during the coronavirus disease 2019 (COVID‐19) pandemic than during the severe acute respiratory syndrome and swine‐origin influenza A outbreaks. The sharp decline in the conditional correlation of crude oil markets following the onset of COVID‐19 increases the persistence of shocks to correlations, thereby diminishing the effectiveness of futures contracts as a hedging instrument.

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“…In addition, researchers increasingly resort to time-varying hedge ratios that are adjusted continuously, since these ratios take into account information sets not available at the time the hedging decision was made. The presence of an ARCH effect in the asset returns induced the researchers, such as Yang and Allen (2004), Zanotti et al (2010), Lin et al (2014), towards dynamic hedging models that account for the time-variation in the joint distribution of the asset series. As Botoc (2017), Hatemi and Roca (2006), Acatrinei et al (2013) contended, dynamic models seem to outperform the conventional models in the asset markets portfolio analysis in terms of the higher expected utility and the greater risk reduction.…”

Section: Introductionmentioning

confidence: 99%

“…(), Lin et al . (), towards dynamic hedging models that account for the time‐variation in the joint distribution of the asset series. As Botoc (), Hatemi and Roca (), Acatrinei et al .…”

Section: Introductionmentioning

confidence: 99%

Portfolio Selection Between a Mature Market and Selected Emerging Markets Indices in the Presence of Structural Breaks

Njegić

Živkov

Momčilović

2019

Bulletin of Econ Res

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The paper examines the influence of the structural breaks on the optimal weights, hedge ratios and hedge effectiveness index (HEI) of risk‐minimizing portfolios composed of S&P500 and selected emerging markets’ indices from East Europe, Asia and South America. We employ a bivariate DCC‐EGARCH models without and with structural breaks and we find better estimation features when structural breaks are included in the model. However, we do not find evidence that insertion of structural breaks increases portfolio hedging performances. The differences that exist between optimal weights, hedge ratios and HEI values are so small that tangible economic benefit for international investors do not exist.

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Dynamic hedging strategy in incomplete market: Evidence from Shanghai fuel oil futures market

Cited by 4 publications

References 35 publications

Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic

Discovering interlinkages between major cryptocurrencies using high-frequency data: new evidence from COVID-19 pandemic

The effectiveness of crude oil futures hedging during infectious disease outbreaks in the 21st century

Portfolio Selection Between a Mature Market and Selected Emerging Markets Indices in the Presence of Structural Breaks

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