Oil Futures Hedging Performance Of Empirical Research

The sustainable economy growth in China needs tremendous energy, especially for oil. For domestic oil supply can not meet the economic development demand, the oil consumption of China becomes more and more dependent on imports. The increasing fluctuation of the world oil price in the spot market has a serious impact on the domestic economy.In that case, it is the key issue for the domestic oil-related business enterprises that how to use the hedging function effectively to avoid risk and fix cost. In practical operation, Chinese enterprises should select not only the futures products but also the hedge ratio estimation model.This paper uses a variety of econometric models to analysis the widely used oil futures and determine the optimal hedge ratio respectively. Then we do the comparison analysis about the hedge performance for all the models.Through the above-mentioned study, we found that:1. Among three petroleum products futures, the most suitable for hedging operation is West Texas Intermediate crude oil futures followed by the North Sea Brent crude futures, and the worst is the industrial 180CST Shanghai fuel oil futures.2. The optimal hedge ratio has been estimated in several ways, and the hedging strategy based on the OLS model is the optimal followed by the BEC-GARCH model. It means that there is no need to pursue advanced and complicated methods in hedging practice, which provides a valuable reference for hedging.3. The hedging performance of out-of-sample is better than the one of inner-sample. This phenomenon demonstrates that the estimation model is of great value to guide practical operations of hedging. This result gives a good support for theoretical methods application to guide the future operation.