Relative value arbitrage in European commodity markets

摘要

AbstractThis 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.