Performance of statistical arbitrage in petroleum futures markets

Amir H. Alizadeh, Nikos K. Nomikos

Abstract

ABSTRACT

This paper investigates the intermarket and intercommodity linkages of petroleum and petroleum product futures markets and proposes trading strategies based on the combination of fundamental and technical analyses. These trading strategies use the cointegration between futures prices as fundamental relationships and implement technical trading rules to determine timing of long-short positions. The robustness of the trading strategies is also tested using the stationary bootstrap approach. Our results indicate that expected market prices in the relative form (spreads) incorporate inefficiencies, which can be translated to abnormal profits through appropriate trading strategies even when high levels of transaction costs (bid-ask spreads) are considered.