The hedging effectiveness of electricity futures in the Spanish market Articles uri icon

publication date

  • May 2023

start page

  • 1

end page

  • 7


  • 103507


  • 53

International Standard Serial Number (ISSN)

  • 1544-6123

Electronic International Standard Serial Number (EISSN)

  • 1544-6131


  • This paper studies the year-by-year and month-by-month (the same month in all years) hedging effectiveness of futures contracts in the Spanish electricity market from 2007 to 2022. We compare the in-sample and out-of-sample hedging ability of naïve, minimum variance, partially predictable, non-parametric, and BEKK_T hedge ratios. Hedging effectiveness varies over time and across months because of unstable correlations between spot price changes and futures price changes. Some methods present meaningful in-sample performance, but the out-of-sample hedging effectiveness is limited. The hedging effectiveness of the naïve ratio on a year-by-year (month-by-month) basis, with monthly differences, is 16% (40%).


  • Business
  • Economics


  • electricity markets; optimal hedge ratio; futures contracts; hedge effectiveness