Shanghai crude oil futures: Returns Independence, volatility asymmetry, and hedging potential

Bushra Naqvi, Nawazish Mirza, Muhammad Umar and Syed Kumail Abbas Rizvi

Energy Economics, 2023, vol. 128, issue C

Abstract: Amidst the rise of Shanghai crude oil futures (SCOF) as a preeminent contender in the global oil arena, this study analyzes its returns and volatility structures in compelling contrast to West Texas Intermediate (WTI) and Brent oil futures (BRENT). A comprehensive examination is conducted using various GARCH models and News impact curves, with the analysis based on daily data spanning from April 2021 to March 2023. The results reveal distinct responses of SCOF when contrasted with WTI and Brent. Firstly, the study finds that SCOF returns exhibit a level of independence from global market movements. Secondly, the assessment of potential asymmetries in the volatility structures displays notable differences among the three markets. Specifically, WTI demonstrates the highest asymmetry, while SCOF exhibits lower asymmetry. These findings imply that SCOF returns exhibit stability and resilience and hold the potential to serve as a formidable hedge against adverse shocks. As investors and policymakers navigate the complex terrain of the global oil market, these insights underscore the strategic advantages and opportunities that SCOF may offer, both in individual investment decisions and broader risk management strategies.

Keywords: SCOF; WTI; Brent; Volatility dynamics; Crude oil futures (search for similar items in EconPapers)
JEL-codes: C22 C58 G15 Q43 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:128:y:2023:i:c:s0140988323006084

DOI: 10.1016/j.eneco.2023.107110

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