The risk premia of energy futures

Adrian Fernandez-Perez, Ana-Maria Fuertes and Joelle Miffre

Energy Economics, 2021, vol. 102, issue C

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 (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Risk Premia of Energy Futures (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:102:y:2021:i:c:s0140988321003467

DOI: 10.1016/j.eneco.2021.105460

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