Performance of utility based hedgesJohn Cotter and Jim Hanly () Energy Economics, 2015, vol. 49, issue C, 718-726 Abstract: Hedgers as investors are concerned with both risk and return. However when measuring hedging performance, the role of returns and investor risk aversion has generally been neglected in the literature, by its focus on minimum variance hedging. In this paper we address this by using utility based performance metrics to evaluate the hedging effectiveness of utility based hedges for hedgers with both moderate and high risk aversion together with the more traditional minimum variance approach. To examine this for an energy hedger, we apply our approach to WTI Crude Oil, for three different hedging horizons, daily, weekly and monthly. We find significant differences between the minimum variance and utility based hedging strategies in-sample for all frequencies. However performance differentials between the different strategies are small and not economically significant. Out-of-sample results support these findings across all frequencies. Keywords: Hedging performance; Utility; Energy; Risk aversion (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:49:y:2015:i:c:p:718-726 DOI: 10.1016/j.eneco.2015.04.004 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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