Hedging China’s Energy Oil Market Risks

Yongyang Su, Chi Keung Lau and Na Tan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper is the first study to examine the effectiveness of the Shanghai Fuel Oil Futures Contract (SHF) in risk reduction on the Chinese energy oil market. We find that the SHF contract can help investors reduce risk by approximately 45%, lower than empirical evidence in developed markets, when weekly data are applied. In contrast, when using daily data SHF contract can only help reduce risk by approximately 9%. The Tokyo Oil Futures Contract (TKF), however, performs two times better, reducing risk by around 17%. The empirical results are robust when variance complicated bivariate GARCH (BGARCH) and bivariate distributions are used. Our results imply the energy oil futures market in China is not well-established and further policy is needed to improve market efficiency.

Keywords: China Energy Oil Market; Hedging Risk Performance; Bivariate GARCH model. (search for similar items in EconPapers)
JEL-codes: C32 G32 Q47 (search for similar items in EconPapers)
Date: 2013-04-06
New Economics Papers: this item is included in nep-ene and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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