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Risk arbitrage opportunities in petroleum futures spreads

โœ Scribed by Girma, Paul Berhanu; Paulson, Albert S.

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
201 KB
Volume
19
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

This article investigates the long-term pricing relationship among crude oil, unleaded gasoline, and heating oil futures prices, and finds that these commodities futures prices are cointegrated. The study finds that the spreads between crude oil and its end products are stationary. Furthermore, this article investigates the risk arbitrage opportunities in three types of popularly traded petroleum futures spreads and finds that historically profitable risk arbitrage opportunities existed and were statistically significant. However, one cannot be certain that these opportunities still exist. The research also finds that moving averages are valid test variables for measuring spreads. Statistical and tabular constructions are used to illustrate findings.

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