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J. Risk Financial Manag. 2019, 12(1), 14; https://doi.org/10.3390/jrfm12010014

Expectations for Statistical Arbitrage in Energy Futures Markets

1
The Kansai Electric Power Company, Incorporated, 6-16, Nakanoshima 3-chome, Kita-Ku, Osaka 530-8270, Japan
2
Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho Nada-ku, Kobe 657-8501, Japan
Received: 7 December 2018 / Revised: 8 January 2019 / Accepted: 12 January 2019 / Published: 15 January 2019
(This article belongs to the Special Issue Empirical Finance)
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Abstract

Energy futures have become important as alternative investment assets to minimize the volatility of portfolio return, owing to their low links with traditional financial markets. In order to make energy futures markets grow further, it is necessary to expand expectations of returns from trading in energy futures markets. Therefore, this study examines whether profits can be earned by statistical arbitrage between wholesale electricity futures and natural gas futures listed on the New York Mercantile Exchange. On the assumption that power prices and natural gas prices have a cointegration relationship, as tested and supported by previous studies, the short-term deviation from the long-term equilibrium is regarded as an arbitrage opportunity. The results of the spark-spread trading simulations using historical data from 2 January 2014 to 29 December 2017 show about 30% yield at maximum. This study shows the possibility of generating earnings in energy futures market. View Full-Text
Keywords: cointegration; statistical arbitrage; natural gas; wholesale electricity; futures market; spark spread cointegration; statistical arbitrage; natural gas; wholesale electricity; futures market; spark spread
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Nakajima, T. Expectations for Statistical Arbitrage in Energy Futures Markets. J. Risk Financial Manag. 2019, 12, 14.

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