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Pairs trading in Chinese commodity futures markets: an adaptive cointegration approach
Author(s) -
Chen Danni,
Cui Jing,
Gao Yan,
Wu Leilei
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12335
Subject(s) - cointegration , futures contract , pairs trade , commodity , economics , trading strategy , econometrics , sample (material) , financial economics , algorithmic trading , alternative trading system , finance , chemistry , chromatography
This study comprehensively examines pairs trading in Chinese commodity futures markets, which, although less researched, represents an important scenario for analysing commodity price behaviour. Based on a sample of daily future returns from 2006 to 2016, we propose a cointegration model that employs an adaptive learning process, and we show that our model yields an average annualised return of 26.94 percent before trading costs, using a closed‐loop strategy. Our results are robust to various tests, including parameter uncertainty, holding period constraints, trading period selection and trading costs.