High Frequency Trading of Brent Crude Price

Author(s)

Thian Cheng Lim , Zhengjiang Hu ,

Download Full PDF Pages: 14-18 | Views: 410 | Downloads: 121 | DOI: 10.5281/zenodo.3413505

Volume 2 - August 2013 (08)

Abstract

A review of high-frequency and pair trading on Brent crude oil is performed, followed by a proposal of empirical study. The oil market is faced with high levels of which makes it appropriate for this investigation. The objective is to investigate the literature on both high-frequency and pair trading and confirmed its predictive power as an investment tool. Our findings showed that although high-frequency trading had increased in the stock market but they are not significant in other commodity markets, due to its higher liquidity requirements.

Keywords

High Frequency Trading, Brent Crude Price

References

  1. A.H. Alizadeh & N.K. Nomikos. “Performance of statistical arbitrage in petroleum futures markets.” The Journal of Energy Markets, vol. 1 (2), pp.3-33, 2008.
  2. B. Büyükşahin & M.A. Robe, “Commodity traders' positions and energy Prices: evidence from the recent boom-bust cycle,” presented at the American Economic Association Meeting, Atlanta, U.S.A., January 2012.
  3. B. Do, R. Faff, & K. Hamza. “A new approach to modeling and estimation for pairs trading.” Internet: www.quantcode.com/modules/wflinks/singlelink.php?lid=226, Feb. 01, 2011.
  4. B.H. Do & R.W. Faff. “Does simple pairs trading still work?” Financial Analysts Journal, vol. 66 (4), pp. 83-95, 2010.
  5. B. Fattouh, L. Kilian, & L. Mahadeva. “The role of speculation in oil markets: what have we learned so far?” CEPR Discussion Paper No. 8916, 2012.
  6. B. Fattouh. “An anatomy of the crude oil pricing system.” The Oxford Institute for Energy Studies, 2011.
  7. B. Litterman. “Chapter 1” in Modern Investment Management – An Equilibrium Approach”, New York: Wiley, 2003.
  8. C. Chiarella, B. Kang, C.N. Sklibosios, & T.D. To, “Humps in the volatility structure of the crude oil futures market,” presented at the 29th International Conference of the French Finance Association (AFFI), Strasbourg, France, 2012.  
  9. C.M. Jones. “What do we know about high-frequency trading?” unpublished.
  10. E. Gatev, W.N. Goetzmann, & K.G. Rouwenhorst. “Pairs trading: performance of a relative-value arbitrage rule. The Review of Financial Studies, vol. 19 (3), pp. 797-827, 2006.
    Schultz & J. Swieringa. “Price discovery in the crude oil market.” Internet: http://ssrn.com/abstract=2160633, Oct. 12, 2012.
  11. G. Vidyamurthy. Pairs Trading: Quantitative Methods and Analysis. Hoboken, New Jersey: John Wiley & Sons, 2004.
  12. H.H. Lean, M. McAleer, & W.K. Wong. “Market efficiency of oil spot and futures: a mean-variance and stochastic dominance approach.” Energy Economics. Vol. 32 (5), pp. 979-986, 2010.
  13. J.C.B. Cooper. “Price elasticity of demand for crude oil: estimates for 23 countries.” OPEC Review, vol. 27 (1), pp. 1-8, 2003.
  14. J.M. Griffin, “OPEC behaviour: a test of alternative hypotheses,” The America Economic Review, vol. 75 (5), pp. 954-963, 1985.
  15. L. Kilian & D. Murphy. “The role of inventories and speculative trading in the global market for crude oil.” Journal of Applied Econometrics, early view, 2013.
  16. M.A. Adelman. “Modelling world oil supply.” The Energy Journal, vol. 14 (1), pp. 1-32, 1993.
  17. M. Cummins & A. Bucca. “Quantitative spread trading on crude oil and refined products markets.” Quantitative Finance, vol. 12 (12), pp. 1857-1875, 2011.
  18. M. Mori & A.J. Ziobrowski. “Performance of pairs trading strategy in the U.S. REIT market.” Real Estate Economics, vol. 39 (3), pp. 409- 428, 2011.
    M. Perlin. “Evaluation of pairs trading strategy at the brazilian financial market.” Journal of Derivatives & Hedge Funds, vol. 15 (2), pp. 122-136, 2009.
  19. N. Sharma & K. Khanna. (2012, Jul.). ““crude oil price velocity & stock market ripple' - a comparative study of BSE with NYSE & LSE”. IJEMR. [On-line]. 2 (7), pp. 1-7. Available: http://exclusivemba.com/ijemr/July2012.htm [Aug. 3, 2013].
  20. P. Nath, “High frequency pairs trading with U.S. treasury securities: risk and rewards for hedge funds,” unpublished, 2003.
  21. P. Silvapulle & I.A. Moosa, “The relationship between spot and futures prices: Evidence from the crude oil market”, Journal of Futures Markets, vol. 19 (2), pp. 175-193, 1999.
  22. R.A. De Santis, “Crude oil price fluctuations and Saudi Arabia‟s behaviour,” Energy Economics, vol. 25 (2), pp. 155-173, 2003.
  23. R.J. Elliott, J.V.D. Hoek, & W.P. Malcolm. “Pairs trading.” Quantitative Finance, vol. 5 (3), pp. 271-276, 2005.
  24. S.S. Chen & K.W. Hsu. “Reverse globalization: Does high oil price volatility discourage international trade?” Energy Economics, Vol. 34 (5), pp. 1634-1643, 2012.
  25. S. Dees, P. Karadeloglou, R. Kaufmann, & M. Sanchez, “Does OPEC matter? An econometric analysis of oil prices”, The Energy Journal, vol. 25 (4), 2003.
  26. T. Bogomolov, “Pairs trading in the land down under,” presented at the Finance and Corporate Governance Conference, Bundoora, Australia, 2010.
  27. T. Kanamura, S.T. Rachev, & F.J. Fabozzi. “A profit model for spread trading with an application to energy futures.” The Journal of Trading, vol. 5 (1), pp. 48-62, 2010.
  28. V. Kishore. “Optimizing pairs trading of us equities in a high frequency setting.” Wharton Research Scholars Journal, 2012.

Cite this Article: