TY - JOUR
T1 - Hedging China's Energy Oil Market Risks
AU - Lau, Marco Chi Keung
AU - Su, Yongyang
AU - Tan, Na
AU - Zhang, Zhe
PY - 2014/6/1
Y1 - 2014/6/1
N2 - 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.
AB - 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.
KW - China energy oil market
KW - Hedging risk performance
KW - Bivariate GARCH model
KW - Shanghai fuel oil futures contract (SHF)
KW - Tokyo oil futures contract (TKF)
UR - https://www.scopus.com/record/display.uri?eid=2-s2.0-85028059740&origin=resultslist&sort=plf-f&src=s&st1=10.1007%2fs40822-014-0003-4&sid=f915157a460f5a18ca6fe18b8cd9249e&sot=b&sdt=b&sl=30&s=DOI%2810.1007%2fs40822-014-0003-4%29&relpos=0&citeCnt=3&searchTerm=
U2 - 10.1007/s40822-014-0003-4
DO - 10.1007/s40822-014-0003-4
M3 - Article
VL - 4
SP - 99
EP - 112
JO - Eurasian Economic Review
JF - Eurasian Economic Review
SN - 1309-422X
IS - 1
ER -