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  • Trading on mean-reversion in energy futures markets

    Author(s)
    Lubnau, Thorben
    Todorova, Neda
    Griffith University Author(s)
    Todorova, Neda
    Year published
    2015
    Metadata
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    Abstract
    We study whether simple technical trading strategies enjoying large popularity among practitioners can be employed profitably in the context of hedge portfolios for Crude Oil, Natural Gas, Gasoline and Heating Oil futures. The strategies tested are based on mean-reverting calendar spread portfolios established with dynamic hedge ratios. Entry and exit signals are generated by so-called Bollinger Bands. The trading system is applied to twenty-two years of historical data from 1992 to 2013 for various specifications, taking transaction costs into account. The significance of the results is evaluated with a bootstrap test in ...
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    We study whether simple technical trading strategies enjoying large popularity among practitioners can be employed profitably in the context of hedge portfolios for Crude Oil, Natural Gas, Gasoline and Heating Oil futures. The strategies tested are based on mean-reverting calendar spread portfolios established with dynamic hedge ratios. Entry and exit signals are generated by so-called Bollinger Bands. The trading system is applied to twenty-two years of historical data from 1992 to 2013 for various specifications, taking transaction costs into account. The significance of the results is evaluated with a bootstrap test in which randomly generated orders are compared to orders placed by the trading system. Whereas we find most combinations involving the front-month and second-month futures to be significantly profitable for all commodities tested, the best results for the risk-adjusted Sharpe Ratio are obtained for WTI Crude Oil and Natural Gas, with Sharpe Ratios in excess of 2 for most combinations and a rather smooth performance for all calendar spreads. Based on our results, there is a serious doubt whether energy futures markets can be considered weakly efficient in the short-term.
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    Journal Title
    Energy Economics
    Volume
    51
    DOI
    https://doi.org/10.1016/j.eneco.2015.06.018
    Subject
    Mechanical engineering
    Applied economics
    Environment and resource economics
    Publication URI
    http://hdl.handle.net/10072/99193
    Collection
    • Journal articles

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