Quantitative spread trading on crude oil and refined products markets
AbstractQuantitative 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.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 12 (2012)
Issue (Month): 12 (December)
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Web page: http://www.tandfonline.com/RQUF20
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