IDEAS home Printed from
   My bibliography  Save this article

Reducing the Impacts of Energy Price Volatility Through Dynamic Portfolio Selection


  • H. Brett Humphreys
  • Katherine T. McClain


This paper uses financial portfolio theory to demonstrate how the energy mix consumed in the United States could be chosen given a national goal to reduce the risky to the domestic macroeconomy of unanticipated energy price shocks. An efficient portfolio frontier of U.S. energy consumption is constructed using time-varying variances and covariances estimated with generalized autoregressive conditional heteroskedastic models. The set of efficient portfolios developed are intended to minimize the impact of price shocks, but are not the least cost energy consumption bundles. The results indicate that while the electric utility industry is operating close to the minimum variance position, a shift towards coal consumption would reduce price volatility for overall U.S. energy consumption. With the inclusion of potential externality costs, the shift remains away from oil but towards natural gas instead of coal.

Suggested Citation

  • H. Brett Humphreys & Katherine T. McClain, 1998. "Reducing the Impacts of Energy Price Volatility Through Dynamic Portfolio Selection," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 107-131.
  • Handle: RePEc:aen:journl:1998v19-03-a06

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to IAEE members and subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • F0 - International Economics - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aen:journl:1998v19-03-a06. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Williams). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.