REnsembling ARIMAX Model in Algorithmic Investment Strategies on Commodities Market

Paweł Jakubowski (), Robert Ślepaczuk and Franciszek Windorbski ()
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Paweł Jakubowski: University of Warsaw, Faculty of Economic Sciences
Franciszek Windorbski: University of Warsaw, Faculty of Management

No 2023-20, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: This paper presents the results of investment strategies based on predictions from an ARIMA with exogenous variables (ARIMAX/ARIMAX-Garch) model, using the prices of selected commodities and companies from the DJIA index as explanatory variables. The explained variables are four Invesco ETF funds (DBE, DBA, DBP, DBB) corresponding to baskets of energy, agricultural, precious, and industrial metals. The models are optimized using the Walk-Forward technique, and the selection of exogenous variables is based on Granger causality tests. By analyzing the results, we conclude that ARIMAX/ARIMAX-Garch models are not useful tools for making buy or sell decisions for the selected commodity baskets. Out of the 80 estimated models, 44 outperform the Buy & Hold strategy, however, none achieved statistically significant results. Combining individual models into an investment portfolio reduced the risk without significantly reducing the profit, enabling us to consistently beat the benchmark. We also observe that using returns of commodities listed on stock exchanges is more effective than using stock returns. Sensitivity analysis shows instability in results with changes in the length of the training and testing windows. The highest annual return rate of 15.37% from 02.01.2008 to 01.12.2022 was characterized by an ARIMAX model with one commodity exogenous variable.

Keywords: ARIMA(X); GARCH; ARIMA(X)/GARCH; Algorithmic Investment Strategies; Granger Causality; Investment Performance Evaluation; Trading Systems; Forecasting Models (search for similar items in EconPapers)
JEL-codes: C14 C4 C45 C53 C58 G11 G13 G15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2023
New Economics Papers: this item is included in nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2023-20

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