Risk Return Trade-offs from Hedging Oil Price Risk in Ecuador

Sudhakar S. Raju

Journal of Emerging Market Finance, 2005, vol. 4, issue 1, 27-41

Abstract: This paper analyses methods to reduce the price risk of Ecuadorian oil exports through hedging in the oil futures market. I simulate ex ante cross hedges over the 1991–96 period and find that in every case, ex ante hedging would have been effective in reducing risk. I provide quantitative estimates of the return/risk trade-offs from hedging Ecuadorian oil and find that for risk minimising short hedges, a 1 per cent reduction in risk would have cost a reduction in return of 0.65 per cent. In sum, I find that oil futures hedging offers Ecuador significant risk-reduction potential.

Keywords: Risk-return trade-off; hedging; oil prices (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:4:y:2005:i:1:p:27-41

DOI: 10.1177/097265270400400102

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