Crude oil hedging strategy: new evidence from the data of the financial crisis

• Autores: Yuki Toyoshima, Tadahiro Nakajima, Shigeyuki Hamori
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 23, Nº. 10-12, 2013, págs. 1033-1041
• Idioma: inglés
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• Resumen

  • This article examines the performance of three multivariate conditional volatility models with respect to crude oil spot and futures returns: the Dynamic Conditional Correlation (DCC) model, Asymmetric Dynamic Conditional Correlation (A-DCC) model and Diagonal Baba-Engle-Kraft-Kroner (Diagonal BEKK) model. Moreover, the article proposes using the time-varying optimal hedge ratio (OHR) to build a hedging strategy in the market, taking advantage of these multivariate conditional volatility models. We employ daily spot and futures data from the West Texas Intermediate (WTI) oil market from 3 January 2007 to 30 December 2011. Variance of portfolios and hedging effectiveness index show that the performance in terms of reducing variance is good in order of A-DCC, DCC and Diagonal-BEKK.