Izvorni znanstveni članak
https://doi.org/10.1080/1331677X.2021.1986413
The effects of skewness on hedging decisions: an application of the skew-normal distribution in WTI and Brent futures
Xing Yu
Xinxin Wang
Yuxia Wang
Yanyan Li
Sažetak
Skewness, as a proxy for extreme risks or losses, deserves more
attention from risk management work of portfolio selection and
futures hedging. We evaluate the hedging performance of strategies considering the skewness for two major benchmark international crude oil markets, Brent and WTI, with sample period
ranging from June 11, 2018, to May 19, 2021. This paper contributes to the literature by accounting for futures basis and the
skewness of the hedged portfolio return. Specifically, we first
extend the existing literature of Lien (2010), whose study investigated the effect of skewness on optimal production and hedging
decisions, to the case of a futures bias existing. Then, we propose
minimum-risk hedging models wherein the return of the hedged
portfolio return is assumed to follow a skew-normal distribution,
which is a generalization of normality assumption. From the
empirical results, we find that skewness cannot be ignored, otherwise it will lead to wrong hedging decision. Furthermore, hedging
strategies under skew-normal distribution are outperformed than
that under the normal distribution assumption. The research
results of this paper have important implications for investors and
decision makers to hedge the price risk of crude oil in extreme
market conditions.
Ključne riječi
Futures hedging; risk measure; hedge efficiency; skew-normal distribution; crude oil markets
Hrčak ID:
302499
URI
Datum izdavanja:
31.3.2023.
Posjeta: 409 *