The economist Paul Krugman advances an interesting argument today in the New York Times against the idea that high oil prices are due to hedge fund speculation.
He believes that speculative buying can lead to persistent high prices (which has been the case for the last few years) only if there is physical hoarding. Yet oil inventory level has been normal for this period.
Indeed, I have been trying to find a mean-reverting strategy to trade oil and oil-related assets for some time now. So far, none have outperformed (even on a risk-adjusted basis) just buy-and-hold energy stocks for the long term!
Ernie - have you done any looking at playing the CL term structure?
I have indeed done some research on mean-reverting calendar spread trades on CL, so far without much trading success.
Do you have any other trading idea utilizing the term structure?
did you stop to think that maybe you're not beating the buy and hold on a risk-adjusted basis because Oil is in a major bull market. It's like being in the middle of the tech bubble and saying I can't find a strategy that beats on a risk-adjusted basis buying all the new highs in tech.
Actually, even during the tech bubble, many mean-reverting strategies beat the buy-and-hold strategy on a risk-adjusted basis.
On the other hand, running mean-reverting strategies on energy-related assets under-perform buy-and-hold strategy for the last 10 years.
Hence I don't think that being in a bubble has much relevance on relative risk-adjusted performance.
It is highly likely that someone, somewhere, out there has a superior mean-reverting strategy for trading energy assets, but I haven't heard from them yet.
I would like to ask you for advise on FX high frequency strategies, if possible. I have a financial engineering and maths background and have - for the last 3 months - been working on currency strategies with (down-to) 1 second data over 9 currency pairs and several other indices. Using almost every aspect of mathematical techniques I know I tried to devise high frequency strategies that consistently deliver positive returns, i.e. if you would regress the number of trades against your equity curve, it should have an Rsqr of 70% or higher. Some strategies were doing extremely good from January till today, but failed to achieve the same performance in the months of December and November. Others were profitable, but had way too few trades to be significant. Before I give up and move to other asset classes or long term horizons, I would like to hear what you think about high frequency FX. Do you think it is possible to devise a profitable high frequency fx strategy at all with sophisticated mathematical concepts, or does it all break down to technicals in FX? In terms of high frequency trading, would you advise me to stay in the fx field, or what should I try instead?
It may be easier to discuss this issue if you send me email directly.
Some people were able to trade HF strategies profitably using sophisticated models, while others can do it with simple models. So I don't think this is the problem.
I think the specific execution technique you use is more important than the backtest model.
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