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Picking up the pennies in front of the bulldozer: The profitability of gilt based trading strategies

Barry Quinn, Alan Hanna and Fred MacDonald

Finance Research Letters, 2018, vol. 27, issue C, 214-222

Abstract: We develop a simple cointegrated pairs trading strategy, including automatic risk control and adjustment for short-selling costs. We applied the strategy to the previously untested and highly liquid market for gilt futures. Profitability is exploited through the mean reversion in the relationship between long and medium gilt futures, and between medium and short gilt futures. Results show the potential for arbitrage profits exists, even using a relatively unsophisticated model, particularly between long and medium gilt futures.

Keywords: Arbitrage trading; Fixed income market; Market efficiency; UK gilt futures (search for similar items in EconPapers)
Date: 2018
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