Hedging China’s energy oil market risks

Lau, Chi Keung, Su, Yongyang, Tan, Na and Zhang, Zhe (2014) Hedging China’s energy oil market risks. Eurasian Economic Review, 4 (1). pp. 99-112. ISSN 1309-422X

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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.

Item Type:	Article
Additional Information:	Published online before print.
Uncontrolled 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
Subjects:	L100 Economics N300 Finance
Department:	Faculties > Business and Law > Newcastle Business School
Depositing User:	Chi Keung Lau
Date Deposited:	26 Aug 2014 11:20
Last Modified:	19 Nov 2019 09:50
URI:	http://nrl.northumbria.ac.uk/id/eprint/17487

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