Can extreme weather forecasts lead to a risk premium? Evidence of a non-linear response in U.S. natural gas futures

Manou Monteux, Maria Cristina Arcuri, Gino Gandolfi and Stefano Caselli

The North American Journal of Economics and Finance, 2025, vol. 80, issue C

Abstract: Using data on hourly frequency observed temperature and daily forecasted temperatures across major U.S. metropolitan areas over a 30-year period, we analyze the relationship between the daily returns of the NYMEX Henry Hub Natural Gas futures and U.S. weather fluctuations. We propose the existence of a novel risk premium linked to extreme weather forecasts for U.S. Natural Gas futures, which outperforms the S&P500 index on an absolute and risk-adjusted basis over a 30-year period. Our findings contribute to opening a new perspective on the non-linear interplay between weather and financial markets emphasizing the importance of these factors in financial risk management and in the context of climate change.

Keywords: Alternative data; Risk premium; Weather risk; Natural gas futures; Market efficiency; Event study; Climate change (search for similar items in EconPapers)
JEL-codes: G11 G13 G14 Q47 Q54 Q58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001342

DOI: 10.1016/j.najef.2025.102494

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