What is a better cross-hedge for energy: Equities or other commodities?

Olson, Eric; Vivian, Andrew; Wohar, Mark E.

doi:10.1016/j.gfj.2018.02.003

Cited by 15 publications

(8 citation statements)

References 46 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The severity of the recent global financial crisis highlighted the risks associated with portfolios containing only conventional financial market assets (Caballero et al, 2008;Lau et al, 2017;Muteba Mwamba et al, 2017;. This in turn has triggered an interest in considering investment opportunities in the energy (specifically oil) market (Degiannakis and Filis, 2017;Olson et al, 2017Olson et al, , 2018Bahloul et al, 2018;Cunado et al, 2019), since the recent financialization of the commodity (including oil) market (Tang and Xiong, 2012;Silvennoinen and Thorp, 2013;Bonato and Taschini, 2016;Gogolin and Kearney, 2016;Pradhananga, 2016; has resulted in an increased participation of hedge funds, pension funds, and insurance companies in the market, with investment in oil now being considered as a profitable alternative instrument in the portfolio decisions of financial institutions (Akram, 2009;Fattouh et al, 2013;Büyükşahin and Robe, 2014;Antonakakis et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

Moments-based spillovers across gold and oil markets

et al. 2020

View full text Add to dashboard Cite

In this paper, we use intraday futures market data on gold and oil to compute returns, realized volatility, volatility jumps, realized skewness and realized kurtosis. Using these daily metrics associated with two markets over the period of December 2, 1997 to May 26, 2017, we conduct linear, nonparametric, and time-varying (rolling) tests of causality, with the latter two approaches motivated due to the existence of nonlinearity and structural breaks. While, there is hardly any evidence of spillovers between the returns of these two markets, strong evidence of bidirectional causality is detected for realized volatility, which seems to be resulting from volatility jumps. Evidence of spillovers are also detected for the crash risk variables, i.e., realized skewness, and for realized kurtosis as well, with the effect on the latter being relatively stronger. Moreover, based on a moments-based test of causality, evidence of co-volatility is deduced, whereby we find that extreme positive and negative returns of gold and oil tend to drive the volatilities in these markets. Our results have important implications for not only investors, but also policymakers.

show abstract

Section: Introductionmentioning

confidence: 99%

Moments-based spillovers across gold and oil markets

et al. 2020

View full text Add to dashboard Cite

show abstract

“…Raza et al (2018) studies the different hedging strategies by considering the real estate and commodity index of the US and supported that the commodity index can be used for hedging real estate stocks. Olson et al (2019) studied the energy market and concluded that the cross-hedging strategy is not effective for managing price risk. In contrast, Chen and Tongurai (2021) used a crosshedging strategy and found that zinc and nickel contracts can be effectively used for managing the lead and tin cash exposure respectively.…”

Section: Review Of Literaturementioning

confidence: 99%

Price Synergy in Spot and Future Market: A Study on Nickel Trade at MCX, India

Samal¹,

Das²

2022

OJC

View full text Add to dashboard Cite

The paper is an attempt to identify the dynamic relationship between the spot and futures of nickel traded at MCX, India. The study is based on secondary data for a period ranging from 2013 to 2020. Augmented Dickyfuller test and Phillip Perron test, Cointegration test, Granger causality test and variance decomposition are the empirical methods used in the study. The study confirms the existence of a long run relationship between the markets. In long run, the unidirectional causal effect is found between the cash and futures market of nickel whereas in the short run bidirectional causality is observed. In the long run futures market of nickel influences, the price discovery of the cash market whereas in the short run both markets influence each other for price discovery. The futures market of nickel traded at MCX, India reflects weak exogeneity in its cash market whereas the cash market of nickel reflects exogeneity in its futures market.

show abstract

“…Meanwhile, the ensuing disruptions to global demand and supply chains have engendered irregular movements in energy prices (see also, Iyke and Ho 2020 ; Iyke 2020a ). Although the motivation to hedge oil market risks is justified by studies suggesting the search for alternative hedging options for oil market risks (see Selmi et al 2018 ; Olson et al 2019 ; Sharma and Rodriguez 2019 ; Okorie and Lin 2020 ), the pandemic period offers yet greater motivation in this regard. This is because the crisis affecting the market becomes heightened with other markets (e.g., equities and currencies) that could be available to investors for diversification, which have also been impacted adversely by the pandemic(see Gil-Alana and Claudio-Quiroga 2020 ; Salisu et al 2020a , b ; Sharma 2020 ; Iyke 2020b ; Narayan 2020b , c ; Narayan et al 2020 ).…”

Section: Introductionmentioning

confidence: 99%

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Salisu

Obiora²

2021

Financ Innov

View full text Add to dashboard Cite

This study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

show abstract

What is a better cross-hedge for energy: Equities or other commodities?

Cited by 15 publications

References 46 publications

Moments-based spillovers across gold and oil markets

Moments-based spillovers across gold and oil markets

Price Synergy in Spot and Future Market: A Study on Nickel Trade at MCX, India

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Contact Info

Product

Resources

About