Open Access Open Access  Restricted Access Subscription or Fee Access

The Hedging Practice with Chinese Energy Futures

Lianqian Yin, Bo Liu

Abstract


This paper aims to study the protocol of hedging practice in Chinese energy futures market with Chinese fuel oil futures and spot data set. The protocol includes selection of theories and models, data diagnosis, hedging periods and its effectiveness. Four models (OLS, VAR, VECM-GARCH and dynamic OLS) are compared through the variance-reduction and mean-variance utility maximization approaches. The empirical study outlines: (1) the effectiveness of hedging strategies has an inverted U shape with the hedging horizons; (2) under utility maximization approach, the portfolio using a dynamic strategy of 10 days’ rebalancing period with VECM-GARCH(2) model can reach a revised Sharpe ratio of 2.95. The improvement of risk/return ratio is significant.

Keywords


Hedging effectiveness; Chinese energy futures; Dynamic model; Utility maximization;

Full Text:

PDF


Disclaimer/Regarding indexing issue:

We have provided the online access of all issues and papers to the indexing agencies (as given on journal web site). It’s depend on indexing agencies when, how and what manner they can index or not. Hence, we like to inform that on the basis of earlier indexing, we can’t predict the today or future indexing policy of third party (i.e. indexing agencies) as they have right to discontinue any journal at any time without prior information to the journal. So, please neither sends any question nor expects any answer from us on the behalf of third party i.e. indexing agencies.Hence, we will not issue any certificate or letter for indexing issue. Our role is just to provide the online access to them. So we do properly this and one can visit indexing agencies website to get the authentic information.