Pairs Trading Profits in Commodity Futures Markets
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This study employs a pairs trading investment strategy on daily commodity futures returns. The study reveals that pairs trading in similarly related commodity futures earns statistically significant excess returns with commensurate volatility. The excess returns from pairs trading in commodity futures are unrelated to conventional market risk factors and they are not associated with classic contrarian investing. The evidence of pairs trading profits in commodity futures supports the view that these profits reflect compensation to arbitrageurs for enforcing the law of one price in similarly related markets to ensure market efficiency.
Asian Finance Association International Conference 2009
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