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The optimal hedge strategy of crude oil spot and futures markets: Evidence from a novel method
Author(s) -
Zhao LuTao,
Meng Ya,
Zhang YueJun,
Li YunTao
Publication year - 2019
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1656
Subject(s) - futures contract , copula (linguistics) , economics , econometrics , crude oil , hedge , spot contract , variance (accounting) , financial economics , ecology , petroleum engineering , engineering , biology , accounting
Hedging is an important measure for investors to resist extreme risks and improve their profits. This paper develops a FIGARCH–EVT–copula–VaR model to derive hedge ratio when hedging crude oil spot and futures markets, overcoming the limitations of static models and simple dynamic models in existing literature. The empirical results indicate that the FIGARCH–EVT–copula–VaR model is superior to the other three commonly used models based on four criteria: mean of returns, variance of returns, ratio of mean to variance of returns, and hedging effectiveness. Comparatively, the new model has superior performance to other three models during the sample period and can be used by investors to obtain excellent hedging effect.