Quantile hedge ratio for energy markets
Keshab Shrestha,
Ravichandran Subramaniam,
Yessy Peranginangin and
Sheena Sara Suresh Philip
Energy Economics, 2018, vol. 71, issue C, 253-272
Abstract:
In this study, we estimate the minimum variance (MV) and quantile hedge ratios for three energy-related commodities: crude oil, heating oil and natural gas. For crude oil and heating oil, we find the quantile hedge ratios to have inverted U shape using daily data. However, for natural gas, the quantile hedge ratios are mostly below the MV hedge ratio which is significantly lower compared to naïve hedge ratio. Such behavior of hedge ratios for daily data is consistent with our empirical results which suggest that price discovery mostly takes place in the futures market for natural gas. We also estimate the hedge ratios for weekly and four-weekly hedging horizons using non-overlapping data. For the longer horizon, we use wavelet analysis to decompose the return time series into different components with respect to different time-scales. We find that, eventually for longer hedging horizons, the quantile hedge ratios converges to MV hedge ratio. The crude oil takes the shortest time-scale to achieve the convergence and the natural gas takes the longest time-scale. Finally, consistent with other studies, we find the hedging effectiveness to increase with hedging horizon.
Keywords: Hedge ratio; Minimum-variance hedge ratio; Wavelet analysis (search for similar items in EconPapers)
JEL-codes: C3 G1 Q4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988318300781
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:71:y:2018:i:c:p:253-272
DOI: 10.1016/j.eneco.2018.02.020
Access Statistics for this article
Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant
More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().