Proposing a New Hedging Strategy Based on Considering the Efficiency of Energy Markets in Crises

Ali Fereydooni () and Ehsan Hajizadeh ()
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Ali Fereydooni: Amirkabir University of Technology (Tehran Polytechnics)
Ehsan Hajizadeh: Amirkabir University of Technology (Tehran Polytechnics)

A chapter in Handbook of Smart Energy Systems, 2023, pp 2631-2652 from Springer

Abstract: Abstract Two essential topics in finance are hedging and efficiency, especially in energy markets. Many companies, funds, practitioners, and investors in these markets are always seeking appropriate opportunities for hedging strategies. The market behaviors during the crisis are not as same as the usual times, and hedging during the efficient times of markets is different from hedging during the inefficient times. Therefore, the primary aim of this study is to find some hedging opportunities in efficient and inefficient times of energy markets during two financial crises. In this chapter, we attempt to detect efficient and inefficient times by two methods for the first step, namely, AMIM and Hurst exponent. Moreover, using hierarchical clustering, we explore some patterns among four significant energy assets and their futures to find some cross-hedging opportunities besides the standard and common form of hedging. Finally, the results demonstrate some exciting strategies for cross hedging in energy markets with their futures.

Keywords: Energy market; Market efficiency; AMIM; Hurst exponent; Hierarchical clustering; Hedge ratio (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-97940-9_88

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DOI: 10.1007/978-3-030-97940-9_88

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