Pairs Trading to the Commodities Futures Market Using Cointegration Method

International Journal of Commerce and Finance, Vol. 1, Issue 1, 2015, 25-38

14 Pages Posted: 15 Jan 2017

See all articles by Cuneyt Ungever

Cuneyt Ungever

Istanbul Commerce University, Students

Date Written: January 9, 2017

Abstract

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.

Keywords: Pairs Trading, Cointegration Approach, Futures Market, Commodities, Statistical Arbitrage

JEL Classification: g11,g12,g13,q02,c58

Suggested Citation

Ungever, Cuneyt, Pairs Trading to the Commodities Futures Market Using Cointegration Method (January 9, 2017). International Journal of Commerce and Finance, Vol. 1, Issue 1, 2015, 25-38. Available at SSRN: https://ssrn.com/abstract=2896370

Cuneyt Ungever (Contact Author)

Istanbul Commerce University, Students ( email )

Istanbul
Turkey

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