Ewald, C.-O. , Haugom, E., Lien, G., Song, P. and Størdal, S. (2022) Riding the Nordic German power-spread: the Einar Aas experiment. Energy Journal, 43(5), (doi: 10.5547/01956574.43.5.cewa)
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Abstract
Inspired by the initial success and eventual failure of Einar Aas' trading strategy exploiting dynamical patterns in the spread between Nordic and German electricity futures, we investigate the question whether there is evidence for possible arbitrage from engaging in both markets simultaneously and the possibility of constructing a trading strategy that ultimately beats the markets. To do this, we first assess the risk premium and relevant Sharpe values for the two markets and observe significant differences. This is followed by a discussion as to how far the different risk premia and Sharpe values alone are evidence of arbitrage. The answer is, they are not. However, we then show that an intelligently chosen long-short strategy constructed in the Einar Aas spirit can generate a positive alpha in the CAPM sense, hence providing evidence of arbitrage.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | Ewald, Professor Christian and Song, Pengcheng |
Authors: | Ewald, C.-O., Haugom, E., Lien, G., Song, P., and Størdal, S. |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Energy Journal |
Publisher: | International Association for Energy Economics |
ISSN: | 0195-6574 |
ISSN (Online): | 1944-9089 |
Copyright Holders: | Copyright © 2022 International Association for Energy Economics |
First Published: | First published in Energy Journal 43(5) |
Publisher Policy: | Reproduced in accordance with the publisher copyright policy |
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