Trading time seasonality in commodity futures: An opportunity for arbitrage in the natural gas and crude oil markets?

• Published in: Energy economics 2022-11, Vol.115, p.106324, Article 106324
• Main Authors: Ewald, Christian-Oliver, Haugom, Erik, Lien, Gudbrand, Størdal, Ståle, Wu, Yuexiang
• Format: Article
• Language: English
• Subjects: Arbitrage; Crude oil; Futures; Natural gas; Seasonality
• ISSN: 0140-9883; 1873-6181; 1873-6181
• DOI: 10.1016/j.eneco.2022.106324

In this paper we investigate energy futures contracts and the presence of a type of seasonality, that has been given very little to no attention in the literature —- we call it trading time seasonality. Such seasonality is exposed through the futures trading time, not its maturity time, nor the underlying spot price. As we show, it can be linked to seasonality in the pricing kernel, but the latter cannot explain it fully. Its relationship to arbitrage and CAPM violation is investigated, and its presence is confirmed for natural gas and crude oil futures markets using descriptive analysis, Kruskal–Wallis testing and CAPM methodology. We provide an informal discussion around possible reasons for the effect and identify seasonal hedging pressure and market sentiments as such. •We introduce the concept of trading time seasonality.•Exposed through the futures trading time, not its maturity time, nor the spot price.•It can be linked to seasonality in the pricing kernel.•Confirm presence using descriptive analysis as well as Kruskal–Wallis test.•Relationship to arbitrage and CAPM violation is investigated and confirmed.