Minimum-Variance Hedging Oil Price Risk for US Energy ETF Investors: Out-of-Sample Investigation

52 Pages Posted: 11 Dec 2018

See all articles by Jingzhen Liu

Jingzhen Liu

University of Aberdeen - Business School

Date Written: November 18, 2018

Abstract

Oil price experienced crashes during the period of the 2008 global financial crisis and the recent period of oil price crisis in 2014. Hedging oil price risk becomes more important for energy industry investors. In this paper, we investigate the out-of-sample dynamic hedging performance by using the oil futures based on 11 methods for estimating the minimum-variance optimal hedge ratio for 5 US energy ETFs. Except variance, we also study the difference in average returns and utilities between the unhedged strategy and the hedged strategy by employing statistical tests. Finally, we study explore the performance of the hedged strategy in terms of cumulative return and variance under different oil market regimes.

Keywords: US Oil and Gas Industry; Dynamic Hedging; Minimum-Variance Hedge; Oil Price Risk; Out-of-Sample

JEL Classification: G10; C52

Suggested Citation

Liu, Jingzhen, Minimum-Variance Hedging Oil Price Risk for US Energy ETF Investors: Out-of-Sample Investigation (November 18, 2018). Available at SSRN: https://ssrn.com/abstract=3286499 or http://dx.doi.org/10.2139/ssrn.3286499

Jingzhen Liu (Contact Author)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
346
PlumX Metrics