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Master limited partnerships: Is it a smart investment vehicle?

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  • Chen, Haiwei
  • Ngo, Thanh

Abstract

Master limited partnerships (MLPs) in the energy sector offer positive alpha and a beta lower than one in more recent period of 2001–2016 as oil prices experience a big upward swing. Further analyses confirm a negative relation between MLPs' alphas and their betas, consistent with the pattern documented by Frazzini and Pedersen (2013). MLPs provide no hedge against inflation risk or against a volatile stock market. Simulations show that these MLPs provide investors with higher returns, lower risk, and thus a higher Sharpe ratio than the traditional strategy of buy-and-hold the S&P 500 index fund.

Suggested Citation

  • Chen, Haiwei & Ngo, Thanh, 2018. "Master limited partnerships: Is it a smart investment vehicle?," Journal of Commodity Markets, Elsevier, vol. 11(C), pages 22-36.
    • Handle: RePEc:eee:jocoma:v:11:y:2018:i:c:p:22-36
    DOI: 10.1016/j.jcomm.2018.02.002
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    References listed on IDEAS

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    Cited by:

    1. Chen, Haiwei & Jory, Surendranath & Ngo, Thanh, 2020. "Earnings management under different ownership and corporate governance structure: A natural experiment with master limited partnerships," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 139-156.
    2. La Monaca, Sarah & Assereto, Martina & Byrne, Julie, 2018. "Clean energy investing in public capital markets: Portfolio benefits of yieldcos," Energy Policy, Elsevier, vol. 121(C), pages 383-393.

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    More about this item

    Keywords

    Master limited partnership; Alpha; Beta; Sharpe ratio;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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