Natural Gas Futures Trading Based on Informed Traders Forecasts
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Chen Gu; Alexander Kurov
- Shanghai Business School
- ?Shanghai Business School - Research Center of Finance
- West Virginia University
- ?West Virginia University - College of Business & Economics
Strategy in a nutshell
The strategy uses both informed and consensus forecasts to construct a predictor for natural gas futures. When the predictor is negative, the investor takes a long position in futures; when positive, the investor shorts futures. Positions are opened 90 minutes before the announcement and closed 5 minutes prior to it.
Economic rationale
The results indicate that the profitability stems from the accuracy of informed traders’ forecasts, rather than from information leakage. This suggests that informed traders’ superior forecasting ability—rather than unfair access to data—drives the observed market behavior.
Backtest performance
Annualised return8.4%
Volatility10%
Sharpe ratio0.84