PAIRS TRADING TO THE COMMODITIES FUTURES MARKET USING COINTEGRATION METHOD

Öz

This paper investigates pairs trading strategy by using the cointegration method among the 10 most popular agricultural future markets. It is found that only in 2 pairs shows trading signal. The pairs trading strategy is performed in two stages that are the formation period and the trading period with daily futures data from 2004 to 2015. After the formation period was constructed, it is assumed that the cointegration error continues to hold the trading period same as it does for the formation period. The pairs trading strategy is created by the long position cotton and the short position coffee and also long position cotton and short position the livecattle. It is found that the profitability of this strategy worked well in both formation period and trading period.

Anahtar Kelimeler

• Pairs Trading
• Cointegration Approach
• Futures Market
• Commodities
• Statistical Arbitrage

Kaynakça

1. Muslumov, A.A.Y. (2009), The profitability of pairs trading in an emerging market setting: Evidence from Istanbul stock exchange. The Empirical Economics Letters, 8(5): 495-500.
2. Nath, P. (2003), High frequency pairs trading with U.S. treasury securities: Risks and rewards for hedge funds. Unpublished Working Paper, London Business School.
3. Nicholas, J.G. (2000), Market neutral investing. Long/short hedge fund strategies. Bloomberg Professional Library: Bloomberg Press.
4. Papadakis, G., Wysocki, P. (2008), Pairs trading and accounting information. Unpublished working paper. Boston University School of Management, MIT Sloan School of Management.
5. Perlin, M., S. (2009), Evaluation of pairs-trading strategy at the Brazilian financial market. Journal of Derivatives & Hedge Funds, 15(2), 122-136.