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The arbitrage strategy in the crude oil futures market of shanghai international energy exchange

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  • Jing Niu

    (Xi’an University of Finance and Economics)

  • Chao Ma

    (Xi’an University of Finance and Economics)

  • Chun-Ping Chang

    (Shih Chien University)

Abstract

This research conducts an empirical study on arbitrage opportunities in the crude oil futures market of Shanghai International Energy Exchange in the period of China’s economic change, 2020–2022. We use the daily closing price data of crude oil futures sc2303 and sc2212 to test whether there is a statistical arbitrage opportunity in China’s crude oil futures market. Taking the most commonly used 12 + 6 rolling window mode in statistical arbitrage, we select several one-year periods that pass the cointegration test during the formation period and apply the optimal opening, closing, and stop loss thresholds based on the highest yield during the formation period to the trading period. Finally, we draw the following conclusions: (i) the pair trading strategy based on the cointegration model is profitable in China’s crude oil futures market; (ii) the 12 + 6 window model can be applied to the pair trading strategy based on China’s crude oil futures. Our research proves the effectiveness of pair trading strategy in China’s crude oil futures market for institutional and individual investors.

Suggested Citation

  • Jing Niu & Chao Ma & Chun-Ping Chang, 2023. "The arbitrage strategy in the crude oil futures market of shanghai international energy exchange," Economic Change and Restructuring, Springer, vol. 56(2), pages 1201-1223, April.
    • Handle: RePEc:kap:ecopln:v:56:y:2023:i:2:d:10.1007_s10644-022-09468-3
    DOI: 10.1007/s10644-022-09468-3
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    Cited by:

    1. Viviana Fanelli & Claudio Fontana & Francesco Rotondi, 2023. "A hidden Markov model for statistical arbitrage in international crude oil futures markets," Papers 2309.00875, arXiv.org.

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    More about this item

    Keywords

    Crude oil futures; Pair trade arbitrage; Cointegration relationship;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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