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The risk premia of energy futures

Fernandez-Perez, A., Fuertes, A-M. ORCID: 0000-0001-6468-9845 & Miffre, J. (2021). The risk premia of energy futures. Energy Economics, 102, doi: 10.1016/j.eneco.2021.105460

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.

Publication Type: Article
Additional Information: © Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Energy futures markets, Risk premium, Long-short portfolios, Integration
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
[img] Text - Accepted Version
This document is not freely accessible until 28 January 2023 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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