Intl. Conference on Economics, Finance & Business, Paris

CAN OIL AND GAS HEDGE AGRICULTURAL COMMODITIES?

KRZYSZTOF ECHAUST, MAŁGORZATA JUST, AGATA KLIBER

Abstract:

We examine the hedging potential of crude oil and natural gas against risk of agricultural commodities. We focus on the most important for European economy agricultural commodities and two specific periods for these markets i.e. COVID-19 and the Russia-Ukraine war. We conduct the optimal hedging strategy in the minimum variance framework where oil futures and gas futures are used together as hedge instruments. Empirical results show that the double-hedging strategy outperforms the strategy based on minimum variance hedge ratio.

Keywords: Oil, Gas, Agricultural commodity, Dynamic hedge ratio, Hedging effectiveness