 The diminishing hedging role of crude oil: Evidence from time varying financializationShahil Sharma and Ivan Rodriguez Journal of Multinational Financial Management, 2019, vol. 52-53 Abstract: Using daily data from 1999 to 2019, we document a diminishing hedging role that crude oil plays for the stock market as a result of growing financialization. With interest rates driven near zero after the crisis of 2007-2009 and the extreme volatility of oil prices, vector autoregressions (VARs) suggest larger roles of oil prices in explaining stock returns during the 2007-2009 crisis and afterwards. We also find increased co-movement between stock and oil during the post-crisis period. Our results indicate that more short positions in crude oil are required to hedge long positions in equity markets during the post-crisis period, i.e., it costs more to use crude oil investments as a hedging tool compared to pre-crisis period. Therefore, investors holding a mixed portfolio of stocks and oil enjoy lower diversification benefits. Keywords: Crisis; Crude oil; Financialization; Hedging; Stock markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:52-53:y:2019:i::s1042444x19301392 DOI: 10.1016/j.mulfin.2019.100593 Access Statistics for this article Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth More articles in Journal of Multinational Financial Management from Elsevier |
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