Economics at your fingertips  

Relative value arbitrage in European commodity markets

Martin Hain, Julian Hess and Marliese Uhrig-Homburg

Energy Economics, 2018, vol. 69, issue C, 140-154

Abstract: This study offers insights into the profitability of convergence trading in European commodity markets, thereby shedding light on the compensation for enforcing the Law of One Price. We analyze profits of a cointegration-based statistical arbitrage strategy on a wide range of European energy sectors and indeed find economically and statistically significant risk-adjusted excess returns which are also different from simple contrarian and momentum-based strategies. More importantly, the magnitude of this intermediation fee seems to be linked to commodity specific frictions limiting arbitrage possibilities. Consistent to the limits to arbitrage literature (e.g. Shleifer and Vishny, 1997 or Xiong, 2001), we find that convergence traders in Europe's commodity markets tend to be non-diversified investors focusing on specific market niches.

Keywords: Relative value aribtrage; Energy commodities; Futures markets; Limits to aribtrage (search for similar items in EconPapers)
JEL-codes: C1 G1 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-05-29
Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:140-154