Picking up the pennies in front of the bulldozer

Myself, Dr Alan Hann and Dr Fred MacDonald recent published a letter investigating the profitability of gilt trading strategies. 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.

Quinn, B., Hanna, A., & MacDonald, F. (2018). Picking up the pennies in front of the bulldozer: The profitability of gilt based trading strategies. Finance Research Letters, 27, 214–222.Hi