Journal
JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY
Volume 20, Issue 2, Pages 135-148Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.intfin.2009.12.001
Keywords
Hedge ratios; Futures; GARCH; Correlation; Electricity
Categories
Funding
- Siena University Research Programme
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European electricity markets have been subject to a broad deregulation process in the last few decades. We analyse hedging policies implemented through different hedge ratios estimation. More specifically we compare naive, ordinary least squares, and GARCH conditional variance and correlations models to test if GARCH models lead to higher variance reduction in a context of high time varying volatility as the case of electricity markets. Our results show that the choice of the hedge ratio estimation model is central on determining the effectiveness of futures hedging to reduce the portfolio volatility. (C) 2009 Elsevier B.V. All rights reserved.
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