Hedging stocks with oil

COVID−19 and oil price risk exposure

“…Oil demand industries are heavy users of oil, and hence they benefit from lower oil prices. 11 The varying exposures of suppliers and users of oil indicate that different risk management measures should be put in place to hedge energy risk ( Batten et al, 2019 ).…”

“…3 Our study contributes to the literature by investigating the impact of the COVID−19 pandemic on the relationship between changes in oil price and financial and non-financial stock returns across regions around the world. 4 Our paper also speaks to the important literature ( Batten, Kinateder, Szilagyi and Wagner, 2017 , 2018 , 2019 ) on the implication of the relation between oil price and stock prices in risk management, asset pricing and portfolio theory. The comovement between oil price changes and stock returns, is a significant factor that helps decide on how to hedge energy risk.…”

Hedging Strategies of Green Assets against Dirty Energy Assets

“…While the academic literature has so far doesn't present robust models to explain the relationship between green bonds and clean energy stock indices from one side and dirty energy investments from another side, it applies various empirical methodologies such as multivariate GARCH models, including the DCC-GARCH process [5,13], cointegration tests [6], and connectedness measures [15]. Thirdly, the current study conducts practical portfolio analyses through examining hedge ratios and hedging effectiveness [19] in a time-varying setting, which is very appreciated by academics and investors. Fourthly, the current study determines the drivers of the hedge portfolio returns [20], which has not so far been examined in the literature dealing with the hedging abilities of clean energy stocks or green bonds.…”

Dynamic asymmetric optimal portfolio allocation between energy stocks and energy commodities: Evidence from clean energy and oil and gas companies

“…First, we estimate MGARCH models for natural gas, heating oil, conventional gasoline, crude oil, and propane, where we pair each of them independently with SPGCE and SPGO. In contrast to many previous studies on energy markets that use symmetric MGARCH models, such as the symmetric BEKK MGARCH model (e.g., Abdallah and Ghorbela (2018), Sarwar et al (2019), and Batten et al (2019)) or the symmetric dynamic conditional correlation (DCC) MGARCH model (e.g., Dutta et al (2020), Ahmad, Rais, et al (2018), Maghyereh et al (2019), and Kumar (2014)), we employ the asymmetric BEKK MGARCH model (Kroner and Ng, 1998), where "bad news" emanating from energy markets, SPGCE, or SPGO differs in effect from "good news." In other words, the asymmetric BEKK model determines how sensitive the volatility spillover between SPGCE stocks, SPGO stocks, and energy commodities is to (positive or negative) news.…”

“…A vast empirical literature exists that considers the linkages between the market of crude oil and national stock markets (see, e.g., Yousaf and Hassan (2019), Sarwar et al (2019), Lin et al (2014), Batten et al (2019), and Ahmed and Huo (2020)) and how holding crude oil can diversify away risks in the stock market (e.g., Chkili et al (2014), Lin et al (2014), Basher and Sadorsky (2016), and Batten et al (2017)). The literature considering linkages between crude oil and clean energy stocks proves relatively scant but becomes increasingly relevant due to developments in energy policy and sustainability targets.…”