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Hedging China’s energy oil market risks

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  • Marco Lau
  • Yongyang Su
  • Na Tan
  • Zhe Zhang

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

Suggested Citation

  • Marco Lau & Yongyang Su & Na Tan & Zhe Zhang, 2014. "Hedging China’s energy oil market risks," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 99-112, June.
    • Handle: RePEc:spr:eurase:v:4:y:2014:i:1:p:99-112
    DOI: 10.1007/s40822-014-0003-4
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    3. Berna Aydoğan & Gökçe Tunç & Tezer Yelkenci, 2017. "The impact of oil price volatility on net-oil exporter and importer countries’ stock markets," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(2), pages 231-253, August.

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    More about this item

    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;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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