Quantitative spread trading on crude oil and refined products markets

Mark Cummins*, Andrea Bucca

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

45 Citations (Scopus)

Abstract

Quantitative trading in oil-based markets is investigated over 2003-2010, with a focus on WTI, Brent, heating oil and gas oil. A total of 861 spreads are considered. A novel optimal statistical arbitrage trading model is applied, with generalised stepwise procedures controlling for data snooping bias. Aggregating upward and downward mean-reversion, profitable strategies are identified with Sharpe ratios greater than 2 in many instances. For the top categories, average daily returns range from 0.07 to 0.55%, with trade lengths of 9-55 days. A collapse in the number of profitable trading strategies is seen in 2008. Robustness to varying transactions costs is examined.

Original languageEnglish
Pages (from-to)1857-1875
Number of pages19
JournalQuantitative Finance
Volume12
Issue number12
DOIs
Publication statusPublished - 1 Dec 2012

Keywords

  • econometrics
  • energy derivatives
  • quantitative trading strategies
  • trading systems

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