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 language | English |
|---|---|
| Pages (from-to) | 1857-1875 |
| Number of pages | 19 |
| Journal | Quantitative Finance |
| Volume | 12 |
| Issue number | 12 |
| DOIs | |
| Publication status | Published - 1 Dec 2012 |
Keywords
- econometrics
- energy derivatives
- quantitative trading strategies
- trading systems