Riding the Nordic German Power-Spread: The Einar Aas Experiment

Christian-Oliver Ewald, Erik Haugom, Gudbrand Lien, Pengcheng Song and Ståle Størdal

The Energy Journal, 2022, vol. 43, issue 5, 51-70

Abstract: Inspired by the initial success and eventual failure of Einar Aas’ trading strategy exploiting dynamical patterns in the spread between Nordic and German electricity futures, we investigate the question whether there is evidence for possible arbitrage from engaging in both markets simultaneously and the possibility of constructing a trading strategy that ultimately beats the markets. To do this, we first assess the risk premium and relevant Sharpe values for the two markets and observe significant differences. This is followed by a discussion as to how far the different risk premia and Sharpe values alone are evidence of arbitrage. The answer is, they are not. However, we then show that an intelligently chosen long-short strategy constructed in the Einar Aas spirit can generate a positive alpha in the CAPM sense, hence providing evidence of arbitrage.

Keywords: Power Markets; Futures; Arbitrage; CAPM (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.5547/01956574.43.5.cewa (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:43:y:2022:i:5:p:51-70

DOI: 10.5547/01956574.43.5.cewa

Access Statistics for this article

More articles in The Energy Journal
Bibliographic data for series maintained by SAGE Publications ().