The economic value of high-frequency data in equity-oil hedge

Wei Kuang

Energy, 2022, vol. 239, issue PA

Abstract: This paper studies the economic value of high-frequency data in the equity-oil hedge. Specifically, we use oil to perform a minimum variance hedge for equity indices. We find that intraday information helps generate more accurate hedge ratio forecasts and achieve more effective variance reduction. However, it does not always lead to larger tail risk reduction or utility gains, as the minimum variance hedging strategy aims for variance reduction without considering the first or high-order moments. Overall, the findings reveal the benefits and limitations of using intraday information in cross-asset hedges, which would be of interest to financial market participants, corporations, and regulators.

Keywords: Minimum variance hedge; Realized hedge ratio; Hedging effectiveness; Equity oil hedge (search for similar items in EconPapers)
JEL-codes: C53 C58 G10 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:239:y:2022:i:pa:s0360544221021526

DOI: 10.1016/j.energy.2021.121904

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