The economic value of high-frequency data in equity-oil hedge

Abstract

This paper studies the economic value of high-frequency data in the equity-oil hedge. Specifically, we use oil to perform a minimum variance hedge for equity indices. We find that intraday information helps generate more accurate hedge ratio forecasts and achieve more effective variance reduction. However, it does not always lead to larger tail risk reduction or utility gains, as the minimum variance hedging strategy aims for variance reduction without considering the first or high-order moments. Overall, the findings reveal the benefits and limitations of using intraday information in cross-asset hedges, which would be of interest to financial market participants, corporations, and regulators.