The demand of energy from an optimal portfolio choice perspective
Economic Modelling, 2017, vol. 61, issue C, 478-494
This paper analyses the demand for energy sector by employing a model form strategic asset allocation literature and quantifying the welfare losses incurred by an investor due to sub-optimal asset allocation. Our sample group includes fifteen major oil producing and consuming countries. We analyze the short-run and long-run desirability of energy sector in the optimal portfolio of an investor with varying level of risk aversion; that is, risk averse and risk tolerant investors. Our results show that the portfolio demand for energy sector is myopic or short-run. For long-run investors, investing in a portfolio of equity market and government bonds is a better proposition. In addition, energy sector is more desirable for risk tolerant investors.
Keywords: Strategic asset allocation; Energy sector; Intertemporal hedge demand; Myopic demand (search for similar items in EconPapers)
JEL-codes: G11 G19 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:61:y:2017:i:c:p:478-494
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