Market efficiency of energy ETFs: Evidence from USO and UGA

Abstract

In this paper, we apply an updated Coppock trading rule and four trading strategies to two energy ETFs, United States Oil (USO) and United States Gasoline Fund (UGA), using weekly data from 2006 to 2022. Our four trading strategies are designed for different levels of risk tolerance. Strategy 1 is for low risk tolerance investors, strategy 2 for medium risk tolerance investors, and strategies 3 and 4 are for high-risk tolerance investors. For each ETF, we compare the performance of buying and holding this ETF (B&H strategy) to the performance of our trading rule for that ETF. We find our trading rules significantly outperforms the B&H strategy. Traders with low, medium, and high-risk tolerance can use our trading rule with combination of four recommended strategies and obtain an improved risk-return tradeoff than the B&H strategy. Further, our results are robust when we apply our trading system to two equal sub-periods for each ETF.