COVID-19 Effects on Arbitrage Trading in the Energy Market

Li Chen and Guang Zhang
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Li Chen: Lingnan College, Sun Yat-sen University, Guangzhou 510275, China
Guang Zhang: Financial Technology Thrust, The Hong Kong University of Science and Technology (Guangzhou), Guangzhou 511400, China

Energies, 2022, vol. 15, issue 13, 1-13

Abstract: This paper investigates the effects of coronavirus disease 2019 (COVID-19) on the performance of arbitrage trading in the energy market using daily data covering the period between 1 January 2015 and 5 December 2021. The investigation was achieved by utilizing a parametric pairs-trading model, where pairs of energy-related securities, including futures, stocks and ETFs traded in the United States, are formed. The empirical results suggest that the out-of-sample performances of pair trading declined sharply in the face of COVID-19. Dividing the whole data sample into two sub-samples, we found that the strategy performed well before COVID-19 but yielded poor results in the pandemic era. The analysis presented in this paper could serve as a benchmark for arbitrage-based trading models in the energy market during the pandemic.

Keywords: COVID-19; pairs trading; U.S. energy market (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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