Hedging with futures: Efficacy of GARCH correlation models to European electricity markets
AbstractEuropean 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 naïve, 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 20 (2010)
Issue (Month): 2 (April)
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Web page: http://www.elsevier.com/locate/intfin
Hedge ratios Futures GARCH Correlation Electricity;
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