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【Yan GAO】 Pairs trading in Chinese commodity futures markets: an adaptivecointegration approach

Published:2019-03-19  Views:

The paper “Pairs trading inChinese commodity futures markets: an adaptive cointegration approach”,coauthored by Professor Yan GAO of the School of Finance, Professor Danni CHENof Beijing Language and Culture University, Jing CUI of Ling Feng Capital Management Co., Ltd and LeileiWU, postgraduate of Peking University, was published in the 57th issue “ACCOUNTING& FINANCE” in 2017. Leilei WU was a undergraduate of cohort 2014 in theSchool of Finance.

Abstract:This study comprehensivelyexaminespairs trading in Chinese commodity futures markets, which, although lessresearched, represents an important scenario for analysing commodity pricebehaviour. Based on a sample of daily future returns from 2006 to 2016, wepropose a cointegration model that employs an adaptive learning process, and weshow that our model yields an average annualised return of 26.94 percent beforetrading costs, using a closed-loop strategy. Our results are robust to varioustests, including parameter uncertainty, holding period constraints, tradingperiod selection and trading costs.

Keywords:Adaptive learning; Chinese commodity futures; Cointegration; Pairs trading



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