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Pairs trading in Chinese commodity futures markets: an adaptive cointegration approach

Author

Listed:
  • Danni Chen
  • Jing Cui
  • Yan Gao
  • Leilei Wu

Abstract

This study comprehensively examines pairs trading in Chinese commodity futures markets, which, although less researched, represents an important scenario for analysing commodity price behaviour. Based on a sample of daily future returns from 2006 to 2016, we propose a cointegration model that employs an adaptive learning process, and we show that our model yields an average annualised return of 26.94 percent before trading costs, using a closed‐loop strategy. Our results are robust to various tests, including parameter uncertainty, holding period constraints, trading period selection and trading costs.

Suggested Citation

  • Danni Chen & Jing Cui & Yan Gao & Leilei Wu, 2017. "Pairs trading in Chinese commodity futures markets: an adaptive cointegration approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1237-1264, December.
    • Handle: RePEc:bla:acctfi:v:57:y:2017:i:5:p:1237-1264
    DOI: 10.1111/acfi.12335
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    References listed on IDEAS

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    Cited by:

    1. Jianlei Han & Jing He & Zheyao Pan & Jing Shi, 2018. "Twenty Years of Accounting and Finance Research on the Chinese Capital Market," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 576-599, December.
    2. Taewook Kim & Ha Young Kim, 2019. "Optimizing the Pairs-Trading Strategy Using Deep Reinforcement Learning with Trading and Stop-Loss Boundaries," Complexity, Hindawi, vol. 2019, pages 1-20, November.

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