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Quantitative spread trading on crude oil and refined products markets

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  • Mark Cummins
  • Andrea Bucca

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.

Suggested Citation

  • Mark Cummins & Andrea Bucca, 2012. "Quantitative spread trading on crude oil and refined products markets," Quantitative Finance, Taylor & Francis Journals, vol. 12(12), pages 1857-1875, December.
    • Handle: RePEc:taf:quantf:v:12:y:2012:i:12:p:1857-1875
    DOI: 10.1080/14697688.2012.715749
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    References listed on IDEAS

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    1. Christopher L. Gilbert, 2008. "Commodity Speculation and Commodity Investment," Department of Economics Working Papers 0820, Department of Economics, University of Trento, Italia.
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