Contribution of Exchange Traded Funds in Hedging Crude Oil Price Risk

Keshab Shrestha, Sheena Sara Suresh Philip and Yessy Peranginangin
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Sheena Sara Suresh Philip: Monash University Malaysia
Yessy Peranginangin: Monash University Indonesia

American Business Review, 2023, vol. 26, issue 1, 203-225

Abstract: In this study, we empirically analyze the contributions of three crude oil-based exchange traded funds (ETFs) and the futures contract in hedging crude oil price risk. In order to measure hedging contributions of ETFs, we estimate the usual minimum variance hedge ratios as well as the quantile based minimum variance hedge ratios based on three different methods. We also compute the hedging effectiveness of the futures contract and three ETFs. We find that ETFs can be used as hedging instruments especially for the longer hedging horizons and extreme quantiles. However, overall, we find the futures contract to be the most effective instrument for hedging.

Keywords: Price Discovery; Information Share; Quantile Hedge Ratio; Exchange Traded Funds (search for similar items in EconPapers)
JEL-codes: C30 G10 Q40 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ris:ambsrv:0077

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