Capturing Energy Risk Premia

41 Pages Posted: 7 May 2019 Last revised: 19 Aug 2021

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Ana-Maria Fuertes

Bayes Business School, City, University of London

Joëlle Miffre

Audencia Business School

Date Written: April 9, 2019

Abstract

This paper studies the energy futures risk premia that can be extracted through long-short portfolios that exploit heterogeneities across contracts as regards various characteristics or signals and integrations thereof. Investors can earn a sizeable premium of about 8% and 12% per annum by exploiting the energy futures contract risk associated with the hedgers’ net positions and roll-yield characteristics, respectively, in line with predictions from the hedging pressure hypothesis and theory of storage. Simultaneously exploiting various signals towards style-integration with alternative weighting schemes further enhances the premium. In particular, the style-integrated portfolio that equally weights all signals stands out as the most effective. The findings are robust to transaction costs, data mining and sub-period analyses.

Keywords: Energy futures markets, Risk premium, Long-short portfolios, Integration

JEL Classification: G13, G14

Suggested Citation

Fernandez-Perez, Adrian and Fuertes, Ana-Maria and Miffre, Joelle, Capturing Energy Risk Premia (April 9, 2019). Energy Economics, 2021, 102, 105460, Available at SSRN: https://ssrn.com/abstract=3368936 or http://dx.doi.org/10.2139/ssrn.3368936

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 9 921 9999 (Phone)
+64 9 921 9940 (Fax)

Ana-Maria Fuertes

Bayes Business School, City, University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://bit.ly/3RxCJqu

Joelle Miffre (Contact Author)

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
242
Abstract Views
1,205
Rank
229,839
PlumX Metrics