Do the crude oil futures of the Shanghai International Energy Exchange improve asset allocation of Chinese petrochemical-related stocks?

Lv, Fei; Yang, Chen; Fang, Libing

doi:10.1016/j.irfa.2020.101537

Cited by 33 publications

(15 citation statements)

References 44 publications

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“…The study shows that strong or weak sentiment could affect the slope and level of the forward curve. Lv et al (2020) explore the dimension of sentiment in predicting the price of Shanghai International…”

Section: Literature Reviewmentioning

confidence: 99%

A market sentiment indicator, behaviourally grounded, for the analysis and forecast of volatility and bubbles

Ciaschini

Recchioni

2022

RBF

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PurposeThis work aims at designing an indicator for detecting and forecasting price volatility and speculative bubbles in three markets dealing with agricultural and soft commodities, i.e. Intercontinental Exchange Futures market Europe, (IFEU), Intercontinental Exchange Futures market United States (IFUS) and Chicago Board of Trade (CBOT). This indicator, designed as a demand/supply odds ratio, intends to overcome the subjectivity limits embedded in sentiment indexes as the Bull and Bears ratio by the Bank of America Merrill Lynch.Design/methodology/approachData evidence allows for the parameter estimation of a Jacobi diffusion process that models the demand share and leads the forecast of speculative bubbles and realised volatility. Validation of outcomes is obtained through the dynamic regression with autoregressive integrated moving average (ARIMA) error. Results are discussed in comparison with those from the traditional generalized autoregressive conditional heteroskedasticity (GARCH) models. The database is retrieved from Thomson Reuters DataStream (nearby futures daily frequency).FindingsThe empirical analysis shows that the indicator succeeds in capturing the trend of the observed volatility in the future at medium and long-time horizons. A comparison of simulations results with those obtained with the traditional GARCH models, usually adopted in forecasting the volatility trend, confirms that the indicator is able to replicate the trend also providing turning points, i.e. additional information completely neglected by the GARCH analysis.Originality/valueThe authors' commodity demand as discrete-time process is capable of replicating the observed trend in a continuous-time framework, as well as turning points. This process is suited for estimating behavioural parameters of the agents, i.e. long-term mean, speed of mean reversion and herding behaviour. These parameters are used in the forecast of speculative bubbles and realised volatility.

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Section: Literature Reviewmentioning

confidence: 99%

A market sentiment indicator, behaviourally grounded, for the analysis and forecast of volatility and bubbles

Ciaschini

Recchioni

2022

RBF

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“…Much research has focused to date on market connectedness , where the outbreak of COVID-19 was found to have enhanced spillover effects. Chinese crude oil futures are found to be an effective tool for hedging against the spot oil assets including OPEC and Oman (Li and Li, 2021), and it can also provide sound hedging effectiveness for the petrochemical-related stocks in China (Lv et al, 2020).…”

Section: Previous Literaturementioning

confidence: 99%

“…The Chinese crude oil futures market shows some dependence on the international crude oil communities, as suggested by high correlations and comovement at short-and long-time horizons (Broadstock et al, 2012;Jia et al, 2015;Huang and Huang, 2020), bi-directional volatility spillovers (Kang and Yoon, 2019;Li and Li, 2021), the effects of external influence (Zhu et al, 2016;Xiao et al, 2018;Yun and Yoon, 2019;Tiwari et al, 2019;Ahmed and Huo, 2021;Guo et al, 2021), and connectedness of down-side risk . The functionalities that Chinese crude oil futures provide to spot assets, such as hedging, and diversification, are internationally comparable (Lv et al, 2020) The market has an inferior position in lead-lag relations with spot oil markets in the Asian region (Zhang et al, 2021). Some conflicting evidence revealed by Chen et al (2017) indicates that the Chinese crude oil market possesses a dominant role in interactions with the Asian spot oils, despite being overshadowed by other international spot crude oils.…”

Section: Introductionmentioning

confidence: 99%

The Growth of Oil Futures in China: Evidence of Market Maturity through Global Crises

Corbet

Hou

et al. 2022

SSRN Journal

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“…3 Gatfaoui (2019) studies how the joint dynamics of US stock, crude oil, and natural gas returns affect active portfolio management with different measures of risk such as variance, semi-variance, and tail-risk. Focusing on China, Lv et al (2020) investigate the performance of portfolios combining petrochemical-related stocks and crude oil futures. While these studies provide very important insights, they are limited with respect to five key requirements which we consider vital for a clear picture.…”

Section: Introductionmentioning

confidence: 99%

“…Second, sophisticated portfolio optimization requires forward-looking estimates of the inputs (see Gao & Nardari, 2018). However, except Lv et al (2020), all of the studies mentioned here assume that returns evolve in an unpredictable fashion and consequently opt for backward-looking settings where historic values are considered to be the best possible estimates. 4 This cuts across the overwhelming empirical evidence on return predictability (see Welch & Goyal, 2008) and the clustering and mean reversion of volatilities and correlations (see Chong & Miffre, 2010;Hansen & Lunde, 2005).…”

Section: Introductionmentioning

confidence: 99%

Do crude oil futures still fuel portfolio performance?

Vinzelberg

Auer

2021

Rev Financ Econ

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Motivated by significant changes in the dynamics of crude oil markets, we revisit the question of whether crude oil futures are a valuable addition to typical stock and bond portfolios. To answer this question, we use a mean-variance framework with established heuristic and classic weighting schemes and, in addition, derive optimal asset weights based on forward-looking estimates of expected returns (via univariate forecast combinations and multivariate LASSO regressions) and covariances (via DCC-GARCH and GO-GARCH models). We find that crude oil futures tend to be of limited benefit for investors. In recent data, their optimal weights are very low and they typically do not enhance out-of-sample portfolio performance. These findings hold in a variety of robustness checks with respect to different datasets, estimation windows, regression specifications, GARCH models, and transaction costs.

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Do the crude oil futures of the Shanghai International Energy Exchange improve asset allocation of Chinese petrochemical-related stocks?

Cited by 33 publications

References 44 publications

A market sentiment indicator, behaviourally grounded, for the analysis and forecast of volatility and bubbles

A market sentiment indicator, behaviourally grounded, for the analysis and forecast of volatility and bubbles

The Growth of Oil Futures in China: Evidence of Market Maturity through Global Crises

Do crude oil futures still fuel portfolio performance?

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