PROFITABILITY OF A SIMPLE PAIRS TRADING STRATEGY: RECENT EVIDENCES FROM A GLOBAL CONTEXT

Pairs trading strategy is a popular investment strategy, where traders long one stock and short the other stock. The trading profits are expected to be “immune” to any market conditions: being uptrend, downtrend, or sideways, instead the performance is determined by the relative performance of the p...
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Autor*in:	MIAO, JIA [verfasserIn] LAWS, JASON

Format:	Artikel
Sprache:	Englisch

Erschienen:	2016

Rechteinformationen:	Nutzungsrecht: © 2016, World Scientific Publishing Company

Schlagwörter:	Rates of return Studies Portfolio performance Profitability Investment policy Transaction costs

Übergeordnetes Werk:	Enthalten in: International journal of theoretical and applied finance - River Edge, NJ [u.a.] : World Scientific, 1998, 19(2016), 4, Seite 1
Übergeordnetes Werk:	volume:19 ; year:2016 ; number:4 ; pages:1

Links:	Volltext Link aufrufen

DOI / URN:	10.1142/S0219024916500230

Katalog-ID:	OLC1978492421

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title	PROFITABILITY OF A SIMPLE PAIRS TRADING STRATEGY: RECENT EVIDENCES FROM A GLOBAL CONTEXT
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title_full	PROFITABILITY OF A SIMPLE PAIRS TRADING STRATEGY: RECENT EVIDENCES FROM A GLOBAL CONTEXT
author_sort	MIAO, JIA
journal	International journal of theoretical and applied finance
journalStr	International journal of theoretical and applied finance
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container_volume	19
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doi_str_mv	10.1142/S0219024916500230
dewey-full	330
title_sort	profitability of a simple pairs trading strategy: recent evidences from a global context
title_auth	PROFITABILITY OF A SIMPLE PAIRS TRADING STRATEGY: RECENT EVIDENCES FROM A GLOBAL CONTEXT
abstract	Pairs trading strategy is a popular investment strategy, where traders long one stock and short the other stock. The trading profits are expected to be “immune” to any market conditions: being uptrend, downtrend, or sideways, instead the performance is determined by the relative performance of the pair. Following Gatev et al. [(1999) Pairs Trading: Performance of a Relative-Value Arbitrage Rule. Working Paper, Yale School of Management; (2006) Pairs trading: Performance of a relative-value arbitrage rule, The Review of Financial Study, 19, 797–827] and Do & Faff [(2010) Does simple pairs trading still work? Financial Analyst Journal, 66, 1–12], we examine whether the simple pairs trading rule is also profitable in markets outside of the US. We also examine whether the trading rule performs consistently during bull and bear markets, including the recent period of market turbulence. Our results show that in most countries, the strategy generates positive returns, without evidence of under performance during bear markets. Unlike prior research, we do not find that the trading profits diminish over recent years. The pairs trading strategy generates positive returns even after transaction costs. However, the returns deteriorate significantly at a higher level of transaction costs. It is also found that the correlation between the returns on our pairs trading portfolios and the returns on the corresponding stock market indexes is low, confirming its role as a diversifier to the traditional long only investments.
abstractGer	Pairs trading strategy is a popular investment strategy, where traders long one stock and short the other stock. The trading profits are expected to be “immune” to any market conditions: being uptrend, downtrend, or sideways, instead the performance is determined by the relative performance of the pair. Following Gatev et al. [(1999) Pairs Trading: Performance of a Relative-Value Arbitrage Rule. Working Paper, Yale School of Management; (2006) Pairs trading: Performance of a relative-value arbitrage rule, The Review of Financial Study, 19, 797–827] and Do & Faff [(2010) Does simple pairs trading still work? Financial Analyst Journal, 66, 1–12], we examine whether the simple pairs trading rule is also profitable in markets outside of the US. We also examine whether the trading rule performs consistently during bull and bear markets, including the recent period of market turbulence. Our results show that in most countries, the strategy generates positive returns, without evidence of under performance during bear markets. Unlike prior research, we do not find that the trading profits diminish over recent years. The pairs trading strategy generates positive returns even after transaction costs. However, the returns deteriorate significantly at a higher level of transaction costs. It is also found that the correlation between the returns on our pairs trading portfolios and the returns on the corresponding stock market indexes is low, confirming its role as a diversifier to the traditional long only investments.
abstract_unstemmed	Pairs trading strategy is a popular investment strategy, where traders long one stock and short the other stock. The trading profits are expected to be “immune” to any market conditions: being uptrend, downtrend, or sideways, instead the performance is determined by the relative performance of the pair. Following Gatev et al. [(1999) Pairs Trading: Performance of a Relative-Value Arbitrage Rule. Working Paper, Yale School of Management; (2006) Pairs trading: Performance of a relative-value arbitrage rule, The Review of Financial Study, 19, 797–827] and Do & Faff [(2010) Does simple pairs trading still work? Financial Analyst Journal, 66, 1–12], we examine whether the simple pairs trading rule is also profitable in markets outside of the US. We also examine whether the trading rule performs consistently during bull and bear markets, including the recent period of market turbulence. Our results show that in most countries, the strategy generates positive returns, without evidence of under performance during bear markets. Unlike prior research, we do not find that the trading profits diminish over recent years. The pairs trading strategy generates positive returns even after transaction costs. However, the returns deteriorate significantly at a higher level of transaction costs. It is also found that the correlation between the returns on our pairs trading portfolios and the returns on the corresponding stock market indexes is low, confirming its role as a diversifier to the traditional long only investments.
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container_issue	4
title_short	PROFITABILITY OF A SIMPLE PAIRS TRADING STRATEGY: RECENT EVIDENCES FROM A GLOBAL CONTEXT
url	http://dx.doi.org/10.1142/S0219024916500230 http://search.proquest.com/docview/1793921778
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author2	LAWS, JASON
author2Str	LAWS, JASON
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doi_str	10.1142/S0219024916500230
up_date	2024-07-03T21:51:02.636Z
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