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

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journal contribution
posted on 01.07.2019, 13:23 authored by Eric Olson, Andrew VivianAndrew Vivian, Mark Wohar
© 2018 Can energy futures returns be effectively hedged? If so, what is the best hedge instrument? We study the hedging performance of several cross-hedges including the equity market, oil and gas equities, precious metals, industrial metals, and agricultural commodities. Our main conclusion is that cross-hedging of fluctuations in the energy market is generally not very effective and that any reduction in overall risk is small unless the oil and gas equity index is used. While all cross-hedges have performed better since 2007, the oil and gas equity index is the most effective, reducing risk by up to 20%, but it is also the most expensive.

History

School

  • Business and Economics

Department

  • Business

Published in

Global Finance Journal

Volume

42

Citation

OLSON, E., VIVIAN, A.J. and WOHAR, M.E., 2018. What is a better cross-hedge for energy: Equities or other commodities? Global Finance Journal, 42, 100417.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This paper was accepted for publication in the journal Global Finance Journal and the definitive published version is available at https://doi.org/10.1016/j.gfj.2018.02.003.

Acceptance date

23/02/2018

Publication date

2018-02-27

ISSN

1044-0283

Language

en

Article number

100417