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Hedging China’s energy oil market risks

Marco Lau (), Yongyang Su (), Na Tan () and Zhe Zhang ()

Eurasian Economic Review, 2014, vol. 4, issue 1, 99-112

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 %. However, the Tokyo Oil Futures Contract performs two times better and reduces risk by about 17 %. The empirical results are robust when variance complicated bivariate GARCH and bivariate distributions are used. Our results imply that the energy oil futures market in China is not well-established and more policies are needed to improve market efficiency. Copyright Eurasia Business and Economics Society 2014

Keywords: China energy oil market; Hedging risk performance; Bivariate GARCH model; Shanghai fuel oil futures contract (SHF); Tokyo oil futures contract (TKF); C32; G32; Q47 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s40822-014-0003-4

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