The Elephant in the Ground: Managing Oil and Sovereign Wealth
Ton Van Den Bremer,
Frederick (Rick) van der Ploeg () and
Samuel Wills ()
No 10188, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Oil exporters typically do not consider below-ground assets when allocating their sovereign wealth fund portfolios, and ignore above-ground assets when extracting oil. We present a unified framework for considering both. Subsoil oil should alter a fund’s portfolio through additional leverage and hedging. First-best spending should be a share of total wealth, and any unhedged volatility must be managed by precautionary savings. If oil prices are pro-cyclical, oil should be extracted faster than the Hotelling rule to generate a risk premium on oil wealth. We then discuss how the management of Norway’s fund can practically be improved with our analysis.
Keywords: hedging; leverage; oil; optimal extraction; portfolio allocation; sovereign wealth fund (search for similar items in EconPapers)
JEL-codes: E21 F65 G11 G15 O13 Q32 Q33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at firstname.lastname@example.org
Journal Article: The Elephant In The Ground: Managing Oil And Sovereign Wealth (2016)
Working Paper: The elephant in the ground: managing oil and sovereign wealth (2014)
Working Paper: THE ELEPHANT IN THE GROUND: MANAGING OIL AND SOVEREIGN WEALTH (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:10188
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=10188
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().