Abstract
We develop a simple cointegrated pairs trading strategy, including automatic risk control and adjustment for short-selling costs. We applied the strategy to the previously untested and highly liquid market for gilt futures. Profitability is exploited through the mean reversion in the relationship between long and medium gilt futures, and between medium and short gilt futures. Results show the potential for arbitrage profits exists, even using a relatively unsophisticated model, particularly between long and medium gilt futures.
Original language | English |
---|---|
Pages (from-to) | 214-222 |
Number of pages | 9 |
Journal | Finance Research Letters |
Volume | 27 |
Early online date | 17 Mar 2018 |
DOIs | |
Publication status | Published - Dec 2018 |
Keywords
- Arbitrage trading
- Fixed income market
- market efficiency
- UK gilt futures
ASJC Scopus subject areas
- Finance