Soybean Crush Spread Arbitrage: Trading Strategies and Market Efficiency

Abstract

This paper revisits the soybean crush spread arbitrage work of Simon (JFM, 1999). Major findings are that contrary to the results reported by Simon, the length of winning and losing trades differ systematically. Winning trades are significantly shorter on average than losing trades. This result leads to trading rules designed to prevent lengthy trades. Secondly, the work by Simon employs symmetric entry and exit limits. That approach assumes that the market overshoots equilibrium. This research studies a wide variety of entry and exit limits and the risk-return relationship between the entry and exit limits.

Keywords: Futures, Arbitrage, Trading Strategies, Market Efficiency

JEL Classification: G1, G13, G14