Arbeitspapier
Pairs trading with partial cointegration
Partial cointegration is a weakening of cointegration that allows for the "cointegrating" process to contain a random walk and a mean-reverting component. We derive its representation in state space, provide a maximum likelihood based estimation routine, and a suitable likelihood ratio test. Then, we explore the use of partial cointegration as a means for identifying promising pairs and for generating buy and sell signals. Specifically, we benchmark partial cointegration against several classical pairs trading variants from 1990 until 2015, on a survivor bias free data set of the S&P 500 constituents. We find annualized returns of more than 12 percent after transaction costs. These results can only partially be explained by common sources of systematic risk and are well superior to classical distance-based or cointegration-based pairs trading variants on our data set.
- Sprache
-
Englisch
- Erschienen in
-
Series: FAU Discussion Papers in Economics ; No. 05/2016
- Klassifikation
-
Wirtschaft
- Thema
-
statistical arbitrage
pairs trading
quantitative strategies
cointegration
partial cointegration
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Clegg, Matthew
Krauss, Christopher
- Ereignis
-
Veröffentlichung
- (wer)
-
Friedrich-Alexander-Universität Erlangen-Nürnberg, Institute for Economics
- (wo)
-
Nürnberg
- (wann)
-
2016
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Clegg, Matthew
- Krauss, Christopher
- Friedrich-Alexander-Universität Erlangen-Nürnberg, Institute for Economics
Entstanden
- 2016
Ähnliche Objekte (12)
Demystifying pairs trading
On (bootstrapped) cointegration tests in partial systems
On (bootstrapped) cointegration tests in partial systems
Pair-wise cointegration in long-run growth models
Forex trading : introduction to the trading of currency pairs
Counting Partial Orders with a Fixed Number of Comparable Pairs
Pairs trading techniques: An empirical contrast
Pairs Trading : Renditechancen durch neue Handelsstrategien
Statistical arbitrage pairs trading strategies: Review and outlook
Pairs trading with a mean-reverting jump-diffusion model on high-frequency data
A singular stochastic control approach for optimal pairs trading with proportional transaction costs
Cointegration analysis with state space models
Demystifying pairs trading
On (bootstrapped) cointegration tests in partial systems
On (bootstrapped) cointegration tests in partial systems
Pair-wise cointegration in long-run growth models
Forex trading : introduction to the trading of currency pairs
Counting Partial Orders with a Fixed Number of Comparable Pairs
Pairs trading techniques: An empirical contrast
Pairs Trading : Renditechancen durch neue Handelsstrategien
Statistical arbitrage pairs trading strategies: Review and outlook
Pairs trading with a mean-reverting jump-diffusion model on high-frequency data
A singular stochastic control approach for optimal pairs trading with proportional transaction costs
Cointegration analysis with state space models
Demystifying pairs trading
On (bootstrapped) cointegration tests in partial systems
On (bootstrapped) cointegration tests in partial systems
Pair-wise cointegration in long-run growth models
Forex trading : introduction to the trading of currency pairs
Counting Partial Orders with a Fixed Number of Comparable Pairs
Pairs trading techniques: An empirical contrast
Pairs Trading : Renditechancen durch neue Handelsstrategien
Statistical arbitrage pairs trading strategies: Review and outlook
Pairs trading with a mean-reverting jump-diffusion model on high-frequency data
A singular stochastic control approach for optimal pairs trading with proportional transaction costs