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COVID-19 Effects on Arbitrage Trading in the Energy Market

Author

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  • Li Chen

    (Lingnan College, Sun Yat-sen University, Guangzhou 510275, China
    These authors contributed equally to this work.)

  • Guang Zhang

    (Financial Technology Thrust, The Hong Kong University of Science and Technology (Guangzhou), Guangzhou 511400, China
    Department of Information Systems, Business Statistics and Operations Management, The Hong Kong University of Science and Technology, Hong Kong, China
    These authors contributed equally to this work.)

Abstract

This paper investigates the effects of coronavirus disease 2019 (COVID-19) on the performance of arbitrage trading in the energy market using daily data covering the period between 1 January 2015 and 5 December 2021. The investigation was achieved by utilizing a parametric pairs-trading model, where pairs of energy-related securities, including futures, stocks and ETFs traded in the United States, are formed. The empirical results suggest that the out-of-sample performances of pair trading declined sharply in the face of COVID-19. Dividing the whole data sample into two sub-samples, we found that the strategy performed well before COVID-19 but yielded poor results in the pandemic era. The analysis presented in this paper could serve as a benchmark for arbitrage-based trading models in the energy market during the pandemic.

Suggested Citation

  • Li Chen & Guang Zhang, 2022. "COVID-19 Effects on Arbitrage Trading in the Energy Market," Energies, MDPI, vol. 15(13), pages 1-13, June.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:13:p:4584-:d:845809
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    References listed on IDEAS

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    Cited by:

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    2. Wu, Junwei & Yang, Cunyi & Chen, Li, 2024. "Examining the non-linear effects of monetary policy on carbon emissions," Energy Economics, Elsevier, vol. 131(C).
    3. Krzysztof Rząsa & Mateusz Ciski, 2022. "Influence of the Demographic, Social, and Environmental Factors on the COVID-19 Pandemic—Analysis of the Local Variations Using Geographically Weighted Regression," IJERPH, MDPI, vol. 19(19), pages 1-26, September.

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