The Risk Premia of Energy Futures

Adrian Fernandez-Perez (), Ana-Maria Fuertes and Joelle Miffre ()
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Adrian Fernandez-Perez: AUT - Auckland University of Technology
Joelle Miffre: Audencia Business School

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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)
Date: 2021-10-01
New Economics Papers: this item is included in nep-cta, nep-ene, nep-fmk, nep-isf, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-03312959
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Citations: View citations in EconPapers (2)

Published in Energy Economics, 2021, ⟨10.1016/j.eneco.2021.105460⟩

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Journal Article: The risk premia of energy futures (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03312959

DOI: 10.1016/j.eneco.2021.105460

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