Can stock market investors hedge energy risk? Evidence from Asia

Jonathan A. Batten, Harald Kinateder, Peter Szilagyi, Niklas Wagner

Research output: Contribution to journalArticleResearchpeer-review

34 Citations (Scopus)

Abstract

The relationship between energy and stock prices is investigated in the context of Asia, including China and Japan. Oil, gas and coal prices are considered both individually and as an energy portfolio. Consistent with evidence from international markets, during the post Global Financial Crisis (GFC) period, Asian stock markets moved in tandem with oil prices. However, using asset pricing and portfolio theory, we identify a time-varying integration between individual stock markets and the energy portfolio, which in turn may limit the benefit of risk reduction through diversification. This relation can also be used to hedge the common factor arising from energy risk. Doing so provides benefits to investors in the form of positive time-varying risk adjusted returns.

Original languageEnglish
Pages (from-to)559-570
Number of pages12
JournalEnergy Economics
Volume66
DOIs
Publication statusPublished - 2017

Keywords

  • Coal
  • Commodities
  • Financial market integration
  • Gas
  • International asset pricing
  • Market risk
  • Oil
  • Systematic risk

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