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German Natural Gas Seasonal Effects on Futures Hedging | Handbook of Energy Finance
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Handbook of Energy Finance, pp. 553-577 (2020)
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Chapter 23: German Natural Gas Seasonal Effects on
Futures Hedging
Beatriz Martinez, Hipòlit Torró, and Vanesa Garcia
https://doi.org/10.1142/9789813278387_0023 Cited by: 0 (Source: Crossref)
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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.
Keywords: Natural gas market
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futures
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hedging ratio
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natural gas price risk
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