Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03312959.html
   My bibliography  Save this paper

The Risk Premia of Energy Futures

Author

Listed:
  • Adrian Fernandez-Perez

    (AUT - Auckland University of Technology)

  • Ana-Maria Fuertes

    (Sir John Cass Business School)

  • Joelle Miffre

    (Audencia Business School)

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.

Suggested Citation

  • Adrian Fernandez-Perez & Ana-Maria Fuertes & Joelle Miffre, 2021. "The Risk Premia of Energy Futures," Post-Print hal-03312959, HAL.
    • Handle: RePEc:hal:journl:hal-03312959
    DOI: 10.1016/j.eneco.2021.105460
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-03312959
    as

    Download full text from publisher

    File URL: https://audencia.hal.science/hal-03312959/document
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.eneco.2021.105460?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul H. Cootner, 1960. "Returns to Speculators: Telser versus Keynes," Journal of Political Economy, University of Chicago Press, vol. 68(4), pages 396-396.
    2. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
    3. Hirshleifer, David, 1990. "Hedging Pressure and Futures Price Movements in a General Equilibrium Model," Econometrica, Econometric Society, vol. 58(2), pages 411-428, March.
    4. Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    5. Sanders, Dwight R. & Boris, Keith & Manfredo, Mark, 2004. "Hedgers, funds, and small speculators in the energy futures markets: an analysis of the CFTC's Commitments of Traders reports," Energy Economics, Elsevier, vol. 26(3), pages 425-445, May.
    6. Hansen, Peter Reinhard, 2005. "A Test for Superior Predictive Ability," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 365-380, October.
    7. I-Hsuan Ethan Chiang, 2016. "Skewness And Coskewness In Bond Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(2), pages 145-178, June.
    8. Fernandez-Perez, Adrian & Frijns, Bart & Fuertes, Ana-Maria & Miffre, Joelle, 2018. "The skewness of commodity futures returns," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 143-158.
    9. Adrian Fernandez-Perez & Ana-Maria Fuertes & Joelle Miffre, 2017. "Commodity Markets, Long-Run Predictability, and Intertemporal Pricing," Review of Finance, European Finance Association, vol. 21(3), pages 1159-1188.
    10. Apostolos Serletis & Vaughn W. Hulleman, 2007. "Business Cycles and the Behavior of Energy Prices," World Scientific Book Chapters, in: Quantitative And Empirical Analysis Of Energy Markets, chapter 4, pages 38-45, World Scientific Publishing Co. Pte. Ltd..
    11. Eric Ghysels & Alberto Plazzi & Rossen Valkanov, 2016. "Why Invest in Emerging Markets? The Role of Conditional Return Asymmetry," Journal of Finance, American Finance Association, vol. 71(5), pages 2145-2192, October.
    12. Amaya, Diego & Christoffersen, Peter & Jacobs, Kris & Vasquez, Aurelio, 2015. "Does realized skewness predict the cross-section of equity returns?," Journal of Financial Economics, Elsevier, vol. 118(1), pages 135-167.
    13. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September.
    14. Gurdip Bakshi & Xiaohui Gao & Alberto G. Rossi, 2019. "Understanding the Sources of Risk Underlying the Cross Section of Commodity Returns," Management Science, INFORMS, vol. 65(2), pages 619-641, February.
    15. Michael W. Brandt & Pedro Santa-Clara & Rossen Valkanov, 2009. "Parametric Portfolio Policies: Exploiting Characteristics in the Cross-Section of Equity Returns," The Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3411-3447, September.
    16. Ge, S. & Li, S. & Linton, O., 2020. "A Dynamic Network of Arbitrage Characteristics," Cambridge Working Papers in Economics 2060, Faculty of Economics, University of Cambridge.
    17. Victor DeMiguel & Alberto Martín-Utrera & Francisco J Nogales & Raman Uppal, 2020. "A Transaction-Cost Perspective on the Multitude of Firm Characteristics," The Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2180-2222.
    18. Fischer, Marcel & Gallmeyer, Michael F., 2016. "Heuristic portfolio trading rules with capital gain taxes," Journal of Financial Economics, Elsevier, vol. 119(3), pages 611-625.
    19. Szakmary, Andrew C. & Shen, Qian & Sharma, Subhash C., 2010. "Trend-following trading strategies in commodity futures: A re-examination," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 409-426, February.
    20. Wenjin Kang & K. Geert Rouwenhorst & Ke Tang, 2020. "A Tale of Two Premiums: The Role of Hedgers and Speculators in Commodity Futures Markets," Journal of Finance, American Finance Association, vol. 75(1), pages 377-417, February.
    21. Hendrik Bessembinder & Michael L. Lemmon, 2002. "Equilibrium Pricing and Optimal Hedging in Electricity Forward Markets," Journal of Finance, American Finance Association, vol. 57(3), pages 1347-1382, June.
    22. Furió, Dolores & Meneu, Vicente, 2010. "Expectations and forward risk premium in the Spanish deregulated power market," Energy Policy, Elsevier, vol. 38(2), pages 784-793, February.
    23. Basu, Devraj & Miffre, Joëlle, 2013. "Capturing the risk premium of commodity futures: The role of hedging pressure," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2652-2664.
    24. Irwin, Scott H. & Sanders, Dwight R., 2012. "Testing the Masters Hypothesis in commodity futures markets," Energy Economics, Elsevier, vol. 34(1), pages 256-269.
    25. Louis Ederington & Jae Ha Lee, 2002. "Who Trades Futures and How: Evidence from the Heating Oil Futures Market," The Journal of Business, University of Chicago Press, vol. 75(2), pages 353-374, April.
    26. Ben R. Marshall & Nhut H. Nguyen & Nuttawat Visaltanachoti, 2012. "Commodity Liquidity Measurement and Transaction Costs," The Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 599-638.
    27. Barroso, Pedro & Santa-Clara, Pedro, 2015. "Beyond the Carry Trade: Optimal Currency Portfolios," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(5), pages 1037-1056, October.
    28. Fernandez-Perez, Adrian & Fuertes, Ana-Maria & Miffre, Joëlle, 2019. "A comprehensive appraisal of style-integration methods," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 134-150.
    29. Amihud, Yakov & Mendelson, Haim & Pedersen, Lasse Heje, 2006. "Liquidity and Asset Prices," Foundations and Trends(R) in Finance, now publishers, vol. 1(4), pages 269-364, February.
    30. Eugene F. Fama & Kenneth R. French, 2015. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums, and the Theory of Storage," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 4, pages 79-102, World Scientific Publishing Co. Pte. Ltd..
    31. Sung Je Byun, 2017. "Speculation in Commodity Futures Markets, Inventories and the Price of Crude Oil," The Energy Journal, , vol. 38(5), pages 93-113, September.
    32. Tim A. Kroencke & Felix Schindler & Andreas Schrimpf, 2014. "International Diversification Benefits with Foreign Exchange Investment Styles," Review of Finance, European Finance Association, vol. 18(5), pages 1847-1883.
    33. Miffre, Joelle & Rallis, Georgios, 2007. "Momentum strategies in commodity futures markets," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1863-1886, June.
    34. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
    35. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    36. Clifford S. Asness & Tobias J. Moskowitz & Lasse Heje Pedersen, 2013. "Value and Momentum Everywhere," Journal of Finance, American Finance Association, vol. 68(3), pages 929-985, June.
    37. repec:bla:jfinan:v:59:y:2004:i:4:p:1877-1900 is not listed on IDEAS
    38. Michael Dewally & Louis H. Ederington & Chitru S. Fernando, 2013. "Determinants of Trader Profits in Commodity Futures Markets," The Review of Financial Studies, Society for Financial Studies, vol. 26(10), pages 2648-2683.
    39. Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-30.
    40. Marta Szymanowska & Frans Roon & Theo Nijman & Rob Goorbergh, 2014. "An Anatomy of Commodity Futures Risk Premia," Journal of Finance, American Finance Association, vol. 69(1), pages 453-482, February.
    41. David Hirshleifer, 1988. "Residual Risk, Trading Costs, and Commodity Futures Risk Premia," The Review of Financial Studies, Society for Financial Studies, vol. 1(2), pages 173-193.
    42. John Douglas (J.D.) Opdyke, 2007. "Comparing Sharpe ratios: So where are the p-values?," Journal of Asset Management, Palgrave Macmillan, vol. 8(5), pages 308-336, December.
    43. Lucia, Julio J. & Torró, Hipòlit, 2011. "On the risk premium in Nordic electricity futures prices," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 750-763, October.
    44. Dong W. Cho & Gerald S. McDougall, 1990. "The supply of storage in energy futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(6), pages 611-621, December.
    45. Victor DeMiguel & Alberto Martín-Utrera & Francisco J Nogales & Raman Uppal & Andrew KarolyiEditor, 2020. "A Transaction-Cost Perspective on the Multitude of Firm Characteristics," Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2180-2222.
    46. Kirby, Chris & Ostdiek, Barbara, 2012. "It’s All in the Timing: Simple Active Portfolio Strategies that Outperform Naïve Diversification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(2), pages 437-467, April.
    47. Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," The Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 637-667.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiao, Jihong & Wang, Yudong, 2022. "Macroeconomic uncertainty, speculation, and energy futures returns: Evidence from a quantile regression," Energy, Elsevier, vol. 241(C).
    2. Xu, Nuo & Kasimov, Ikboljon & Wang, Yanan, 2022. "Unlocking private investment as a new determinant of green finance for renewable development in China," Renewable Energy, Elsevier, vol. 198(C), pages 1121-1130.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rad, Hossein & Low, Rand Kwong Yew & Miffre, Joëlle & Faff, Robert, 2020. "Does sophistication of the weighting scheme enhance the performance of long-short commodity portfolios?," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 164-180.
    2. Fuertes, Ana-Maria & Zhao, Nan, 2023. "A Bayesian perspective on commodity style integration," Journal of Commodity Markets, Elsevier, vol. 30(C).
    3. Rad, Hossein & Low, Rand Kwong Yew & Miffre, Joëlle & Faff, Robert, 2022. "The strategic allocation to style-integrated portfolios of commodity futures," Journal of Commodity Markets, Elsevier, vol. 28(C).
    4. Fernandez-Perez, Adrian & Fuertes, Ana-Maria & Miffre, Joëlle, 2019. "A comprehensive appraisal of style-integration methods," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 134-150.
    5. Loïc Maréchal, 2023. "A tale of two premiums revisited," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(5), pages 580-614, May.
    6. Sakkas, Athanasios & Tessaromatis, Nikolaos, 2020. "Factor based commodity investing," Journal of Banking & Finance, Elsevier, vol. 115(C).
    7. John Hua Fan & Adrian Fernandez‐Perez & Ana‐Maria Fuertes & Joëlle Miffre, 2020. "Speculative pressure," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 575-597, April.
    8. Fernandez-Perez, Adrian & Frijns, Bart & Fuertes, Ana-Maria & Miffre, Joelle, 2018. "The skewness of commodity futures returns," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 143-158.
    9. Miffre, Joëlle, 2016. "Long-short commodity investing: A review of the literature," Journal of Commodity Markets, Elsevier, vol. 1(1), pages 3-13.
    10. John Hua Fan & Tingxi Zhang, 2020. "The untold story of commodity futures in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(4), pages 671-706, April.
    11. Jun Yuan & Qi Xu & Ying Wang, 2023. "Probability weighting in commodity futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(4), pages 516-548, April.
    12. Ahmed, Shamim & Tsvetanov, Daniel, 2016. "The predictive performance of commodity futures risk factors," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 20-36.
    13. Rad, Hossein & Low, Rand Kwong Yew & Miffre, Joëlle & Faff, Robert, 2023. "The commodity risk premium and neural networks," Journal of Empirical Finance, Elsevier, vol. 74(C).
    14. Jo, Yonghwan & Kim, Jihee & Santos, Francisco, 2022. "The impact of liquidity risk in the Chinese banking system on the global commodity markets," Journal of Empirical Finance, Elsevier, vol. 66(C), pages 23-50.
    15. Prokopczuk, Marcel & Symeonidis, Lazaros & Wese Simen, Chardin & Wichmann, Robert, 2023. "Convenience yield risk," Energy Economics, Elsevier, vol. 120(C).
    16. Jacopo Piana & Daniele Bianchi, 2017. "Expected Spot Prices and the Dynamics of Commodity Risk Premia," 2017 Meeting Papers 1149, Society for Economic Dynamics.
    17. Fernandez-Perez, Adrian & Fuertes, Ana-Maria & Gonzalez-Fernandez, Marcos & Miffre, Joelle, 2020. "Fear of hazards in commodity futures markets," Journal of Banking & Finance, Elsevier, vol. 119(C).
    18. Zaremba, Adam & Mikutowski, Mateusz & Szczygielski, Jan Jakub & Karathanasopoulos, Andreas, 2021. "The alpha momentum effect in commodity markets," Energy Economics, Elsevier, vol. 93(C).
    19. John Hua Fan & Sebastian Binnewies & Sanuri De Silva, 2023. "Wisdom of crowds and commodity pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(8), pages 1040-1068, August.
    20. Yao, Wei & Alexiou, Constantinos, 2024. "On the transmission mechanism between the inventory arbitrage activity, speculative activity and the commodity price under the US QE policy: Evidence from a TVP-VAR model," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1054-1072.

    More about this item

    Keywords

    Energy futures markets; Risk premium; Long-short portfolios; Integration;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03312959. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.