Combining multivariate volatility forecasts using weighted losses

Adam Clements; Mark Bernard Doolan

doi:10.1002/for.2647

Combining multivariate volatility forecasts using weighted losses

Journal of Forecasting ◽

10.1002/for.2647 ◽

2020 ◽

Vol 39 (4) ◽

pp. 628-641

Author(s):

Adam Clements ◽

Mark Bernard Doolan

Keyword(s):

Multivariate Volatility

Download Full-text

Pitfalls of the Cholesky Decomposition for Forecasting Multivariate Volatility

SSRN Electronic Journal ◽

10.2139/ssrn.2686482 ◽

2015 ◽

Author(s):

Moritz Daniel Heiden

Keyword(s):

Cholesky Decomposition ◽

Multivariate Volatility

Download Full-text

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Financial Innovation ◽

10.1186/s40854-021-00253-1 ◽

2021 ◽

Vol 7 (1) ◽

Author(s):

Afees A. Salisu ◽

Kingsley Obiora

Keyword(s):

Crude Oil ◽

Structural Breaks ◽

Exchange Traded Funds ◽

Modeling Framework ◽

Risk Hedging ◽

Financial Innovations ◽

Oil Market ◽

Price Series ◽

Hedging Effectiveness ◽

Multivariate Volatility

AbstractThis study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

Download Full-text