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German Natural Gas Seasonal Effects on Futures Hedging

In: HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations

Author

Listed:
  • Beatriz Martinez
  • Hipòlit Torró
  • Vanesa Garcia

Abstract

In energy markets, changes in the spot price due to the influence of weather and seasonal demand conditions are partially predictable. In this work, we examine the German GASPOOL and NetConnect Germany natural gas markets using the Ederington and Salas [2008] framework that considers the predictive power of the base (futures price minus spot price) in the estimation of minimum variance hedge ratios. A considerable improvement in risk reduction and hedging effectiveness can be obtained by considering the partial predictability of changes in spot prices. We find that long hedges perform better than short hedges and there is no benefit to be gained by using more complex hedging estimations (BEKK) over the simpler OLS model. Seasonality is also found in hedging ratios.

Suggested Citation

  • Beatriz Martinez & Hipòlit Torró & Vanesa Garcia, 2020. "German Natural Gas Seasonal Effects on Futures Hedging," World Scientific Book Chapters, in: Stéphane Goutte & Duc Khuong Nguyen (ed.), HANDBOOK OF ENERGY FINANCE Theories, Practices and Simulations, chapter 23, pages 553-577, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813278387_0023
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    More about this item

    Keywords

    Energy Finance; Financial and Economic Modeling; Volatility; Forecasting; Quantitative Finance; Energy Markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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