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A Calendar Spread Trading Simulation of Seasonal Processing Spreads

Author

Listed:
  • Cole, Christine A.
  • Kastens, Terry L.
  • Hampel, Frederick A.

Abstract

This study examined the potential reliability of seasonality in intermarket incremental margin calendar crushes, expected margin calendar crushes, and deferred crushes for application in real-time futures trading. Seasonal rolling averages were used to select the expected high (sell) and buy (low) points for out-of-sample trading simulations of four processing spreads: the heating oil crush, the unleaded gasoline crush, the soybean complex crush, and the cattle crush. Results suggest that simply buy (sell) and holding trading strategies based on historical seasonality do not generally produce positive profits that re significantly different from zero. Results indicate that of the twelve crush combinations examined, only the incremental cattle and the May deferred cattle crushes exhibited statistically significant profits. Furthermore, results suggest that although seasonal recurring patterns allude to profit opportunities, these opportunities erode quickly due to rolling and trading transactions costs.

Suggested Citation

  • Cole, Christine A. & Kastens, Terry L. & Hampel, Frederick A., 1999. "A Calendar Spread Trading Simulation of Seasonal Processing Spreads," 1981-1999 Conference Archive 285759, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nc8191:285759
    DOI: 10.22004/ag.econ.285759
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    References listed on IDEAS

    as
    1. Gerald D. Gay & Tae‐Hyuk Kim, 1987. "An investigation into seasonality in the futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 7(2), pages 169-181, April.
    2. Peter A. Abken, 1989. "An analysis of intra‐market spreads in heating oil futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(1), pages 77-86, February.
    3. Paul Berhanu Girma & Albert S. Paulson, 1998. "Seasonality in petroleum futures spreads," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(5), pages 581-598, August.
    4. Terry L. Kastens & Ted C. Schroeder, 1995. "A trading simulation test for weak‐form efficiency in live cattle futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(6), pages 649-675, September.
    5. Peter A. Abken, 1989. "An analysis of intra‐market spreads in heating oil futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(1), pages 77-86, February.
    6. W. Brian Barrett & Robert W. Kolb, 1995. "Analysis of spreads in agricultural futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(1), pages 69-86, February.
    7. Robert L. Johnson & Carl R. Zulauf & Scott H. Irwin & Mary E. Gerlow, 1991. "The soybean complex spread: An examination of market efficiency from the viewpoint of a production process," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 11(1), pages 25-37, February.
    8. Peter A. Abken, 1989. "An analysis of intra‐market spreads in heating oil futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 9(1), pages 77-86, February.
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