Cointegration Based Trading Strategy For Soft Commodities Market
Piotr Arendarski () and
No 2012-02, Working Papers from Faculty of Economic Sciences, University of Warsaw
This paper explores cointegration among three of the most popular agriculture soft commodities (corn, soya and wheat) and its potential usefulness for dynamic asset allocation strategies. Johansen tests indicate that natural logarithms of weekly prices of corn, soya and wheat futures are cointegrated and two cointegrating vectors exist. Formal tests show that the estimated long-run relationship is stable even beyond the estimation sample. We use obtained results to create simple trading rules and verify their profitability. The trading strategies’ risk-adjusted abnormal returns look to be significant based on the Sharpe ratio criterion and they are low correlated with the stock market.
Keywords: cointegration; soft commodities; trading rule (search for similar items in EconPapers)
JEL-codes: C58 G11 (search for similar items in EconPapers)
Pages: 13 pages
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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP68.pdf First version, 2012 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2012-02
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