Downside Risk and the Energy Hedger’s Horizon

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dc.contributor.author Conlon, Thomas
dc.contributor.author Cotter, John
dc.date.accessioned 2012-10-16T13:32:08Z
dc.date.available 2012-10-16T13:32:08Z
dc.date.copyright 2012, UCD Geary Institute en
dc.date.issued 2012-08
dc.identifier.uri http://hdl.handle.net/10197/3868
dc.description.abstract In this paper, we explore the impact of investor time-horizon on an optimal downside hedged energy portfolio. Previous studies have shown that minimum-variance hedging effectiveness improves for longer horizons using variance as the performance metric. This paper investigates whether this result holds for different hedging objectives and effectiveness measures. A wavelet transform is applied to calculate the optimal heating oil hedge ratio using a variety of downside objective functions at different time-horizons. We demonstrate decreased hedging effectiveness for increased levels of uncertainty at higher confidence intervals. Moreover, for each of the different hedging objectives and effectiveness measures studied, we also demonstrate increasing hedging effectiveness at longer horizons. While small differences in effectiveness are found across the different hedging objectives, time horizon effects are found to dominate confirming the importance of considering the hedgers horizon. The findings suggest that while downside risk measures are useful in the computation of an optimal hedge ratio that accounts for unwanted negative returns, hedging horizon and confidence intervals should also be given careful consideration by the energy hedger. en
dc.description.sponsorship Science Foundation Ireland en
dc.language.iso en en
dc.publisher University College Dublin Geary Institute en
dc.relation.ispartofseries UCD Geary Institute Discussion Papers en
dc.relation.ispartofseries WP2012/19 en
dc.relation.requires Business Research Collection en
dc.subject Downside risk en
dc.subject Hedging horizon en
dc.subject Futures hedging en
dc.subject Energy hedging en
dc.subject Wavelet transform en
dc.subject.lcsh Hedging (Finance) en
dc.subject.lcsh Financial risk management en
dc.subject.lcsh Wavelets (Mathematics) en
dc.title Downside Risk and the Energy Hedger’s Horizon en
dc.type Working Paper en
dc.internal.availability Full text available en
dc.internal.webversions http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201219.pdf en
dc.status Not peer reviewed en
dc.neeo.contributor Conlon|Thomas|aut|
dc.neeo.contributor Cotter|John|aut|


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