The Risk Premia of Energy Futures

Adrian Fernandez-Perez (1) , Ana-Maria Fuertes (2) , Joelle Miffre (3)

1 AUT - Auckland University of Technology
2 Sir John Cass Business School
3 Audencia Business School

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.

Mots clés: Energy futures markets; Risk premium; Long-short portfolios; Integration

Domaines: Sciences de l'Homme et Société; Economies et finances

Adrian Fernandez-Perez, Ana-Maria Fuertes, Joelle Miffre. The Risk Premia of Energy Futures. Energy Economics, 2021, ⟨10.1016/j.eneco.2021.105460⟩. ⟨hal-03312959⟩