Seeking a shock haven: Hedging extreme upward oil price changes

Thomas Conlon, Shaen Corbet, Hou, Yang (Greg), Yang Hu and Les Oxley

International Review of Financial Analysis, 2024, vol. 94, issue C

Abstract: Crude oil is prone to large upward price shocks, creating challenges for personal and corporate budgeting and the economy more broadly. In this paper, we systematically assess a range of possible assets which might function as shock havens against large oil price shocks. Empirical tests uncover a rich set of assets which act both as hedges and shock havens, including precious metals, soft commodities and, with less consistency, currencies. The range of possible hedges is extensive, marked by a positive correlation with oil returns on average. Gold, silver, platinum, corn, and wheat are shown to provide consistent shock haven properties across various specifications, including those surrounding the large oil price changes observed during the COVID-19 Pandemic and following the invasion of Ukraine.

Keywords: Crude oil; Shock haven; Hedge; Price shock; Energy; Financial services (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:94:y:2024:i:c:s1057521924001777

DOI: 10.1016/j.irfa.2024.103245

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