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Timing strategy performance in the crude oil futures market

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  • Taylor, Nick

Abstract

The rewards to speculative trading in the crude oil futures market are assessed. For investors who adopt timing strategies that maximise their (iso-elastic) utility during each trading session, the rewards can be economically significant providing that transaction costs are small. Moreover, we are able to show via a decomposition of performance that the bulk of this benefit is due to their ability to predict realised volatility (that is, the second realised moment). The benefits derived from predicting other realised moments either require unrealistic levels of skill (all odd moments) or an infeasible degree of risk aversion (the fourth moment and higher even moments).

Suggested Citation

  • Taylor, Nick, 2017. "Timing strategy performance in the crude oil futures market," Energy Economics, Elsevier, vol. 66(C), pages 480-492.
    • Handle: RePEc:eee:eneeco:v:66:y:2017:i:c:p:480-492
    DOI: 10.1016/j.eneco.2017.07.019
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    More about this item

    Keywords

    Crude oil futures; Timing strategies; Realised moments; Volatility;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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