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Risk arbitrage opportunities in petroleum futures spreads
Author(s) -
Girma Paul Berhanu,
Paulson Albert S.
Publication year - 1999
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/(sici)1096-9934(199912)19:8<931::aid-fut5>3.0.co;2-l
Subject(s) - futures contract , arbitrage , financial economics , economics , petroleum , crude oil , heating oil , econometrics , statistical arbitrage , crack spread , gasoline , index arbitrage , west texas intermediate , risk arbitrage , oil price , monetary economics , arbitrage pricing theory , capital asset pricing model , engineering , petroleum engineering , geology , paleontology , waste management
This article investigates the long‐term pricing relationship among crude oil, unleaded gasoline, and heating oil futures prices, and finds that these commodities futures prices are cointegrated. The study finds that the spreads between crude oil and its end products are stationary. Furthermore, this article investigates the risk arbitrage opportunities in three types of popularly traded petroleum futures spreads and finds that historically profitable risk arbitrage opportunities existed and were statistically significant. However, one cannot be certain that these opportunities still exist. The research also finds that moving averages are valid test variables for measuring spreads. Statistical and tabular constructions are used to illustrate findings. © 1999 John Wiley & Sons, Inc., Jrl Fut Mark 19: 931–955, 1999