Mispricings in global energy markets

I. Figuerola-Ferretti Garrigues, I. Paraskevopoulos, T. Tang

Applied Finance Letters Vol. 11, nº. 1, pp. 75 - 85

Summary:

Financial market participants can benefit from understanding how shocks affect equity mispricings. Energy corporates have been exposed to multiple structural changes over the past decades. This paper applies the pairs trading algorithm of Figuerola-Ferretti et al. (2018) (Journal of Futures Markets, 2018) to analyze mean reversion of cointegrated stocks in global energy equity markets. Using daily data covering the US, Europe and Asia we report positive risk adjusted returns that supersede their corresponding equity index counterparts. Pairs trading profitability is enhanced when filtering stocks with the measure of capital expenditure (CAPEX).

Keywords: Mispricings, Energy markets, Energy transition, Pairs trading

DOI reference: https://doi.org/10.24135/afl.v11i1.538

Published on paper: May 2022.

Published on-line: May 2022.

Citation:
I. Figuerola-Ferretti Garrigues, I. Paraskevopoulos, T. Tang, Mispricings in global energy markets. Applied Finance Letters. Vol. 11, nº. 1, pp. 75 - 85, May 2022. [Online: May 2022]