The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market

13 Pages Posted: 13 Jun 2015

Date Written: June 12, 2015

Abstract

Harvey, Liu and Zhu argue that probably most of the Cross-Section of Returns literature is garbage. One can always try an additional factor and will find a significant Cross-Sectional result with enough trial and error. Lopez de Prado argues in a series of articles in a similar vein.

Theoretically scientific results are falsifiable. Practically previous results and publications are checked only in rare occasions. Growth in a Time of Depth by Reinhart-Rogoff was the most influential economic paper in recent years. It was published in a top journal. Although the paper contained even trivial Excel-Bugs it took 3 years till the wrong results and the poor methodology was fully revealed. The reviewers did not check the simple spreadsheets.

This paper analyzes a less prominent example about spread trading in the crude oil futures market by Thorben Lubnau. The author reports for his very simple strategy a long term Sharpe-Ratios above 3. It is shown that – like for Reinhart-Rogoff – one needs no sophisticated test statistics to falsify the results. The explanation is much simpler: The author has no clue of trading. He used the wrong data.

Suggested Citation

Donninger, Chrilly, The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market (June 12, 2015). Available at SSRN: https://ssrn.com/abstract=2617585 or http://dx.doi.org/10.2139/ssrn.2617585

Chrilly Donninger (Contact Author)

Nimzowerkstatt OEG ( email )

Altmelon 110
Arbesbach, Lower-Austria A-3925
Austria

HOME PAGE: http://www.godotfinance.com

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