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Hedge Ratio Variation Under Different Energy Market Conditions: New Evidence by Using Quantile–Quantile Approach

In: Global Economic Challenges

Author

Listed:
  • Karim Barati

    (Eastern Mediterranean University)

  • Arshian Sharif

    (School of Economics, Finance and Banking, College of Business, University Utara)

  • Korhan K. Gökmenoğlu

    (Ankara HBV University)

Abstract

In this research, we investigated the long-run and causal relationships between spot and futures prices of crude oil, natural gas, and gasoline using monthly data and considering the variables’ distribution. The quantile co-integration and quantile causality tests provided strong evidence for the long-run and causal relationships among the variables. Furthermore, we examined the optimal hedge ratio (OHR) at different quantiles of the series using the recently developed quantile on the quantile approach. For all three commodities, our results confirmed the asymmetric response of the spot market to the futures market. Furthermore, our findings show that in a bullish market and for a large positive shock, the value of OHR is significantly greater than one. We observed lower fluctuations in the OHR as the maturities of the futures contracts increased. We discuss the policy implications of our research in detail in the Conclusion section.

Suggested Citation

  • Karim Barati & Arshian Sharif & Korhan K. Gökmenoğlu, 2023. "Hedge Ratio Variation Under Different Energy Market Conditions: New Evidence by Using Quantile–Quantile Approach," Springer Proceedings in Business and Economics, in: Nesrin Özataç & Korhan K. Gökmenoğlu & Daniel Balsalobre Lorente & Nigar Taşpınar & Bezhan Rustamov (ed.), Global Economic Challenges, pages 1-19, Springer.
    • Handle: RePEc:spr:prbchp:978-3-031-23416-3_1
    DOI: 10.1007/978-3-031-23416-3_1
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