Pairs Trading: Evaluation of profitability and risks on the Swedish stock market
(2015) NEKP03 20151Department of Economics
- Abstract
- The turbulent market environment experienced over the last decades has attracted the broad interest of institutional and retail investors towards non-directional and absolute return investment strategies. The scope of this paper mainly concerns the investigation of whether a pairs trading strategy based on the cointegration approach generates excess returns on the Swedish equity market or fails to meet initial expectations. This is enhanced by an assessment of the volatility exposure relative to an investment in the corresponding benchmark. In this research, a comprehensive analysis of the pairs trading strategy is performed by (1) implementing a long-term rolling window backtest applied on the OMX, (2) a corresponding scenario analysis of... (More)
- The turbulent market environment experienced over the last decades has attracted the broad interest of institutional and retail investors towards non-directional and absolute return investment strategies. The scope of this paper mainly concerns the investigation of whether a pairs trading strategy based on the cointegration approach generates excess returns on the Swedish equity market or fails to meet initial expectations. This is enhanced by an assessment of the volatility exposure relative to an investment in the corresponding benchmark. In this research, a comprehensive analysis of the pairs trading strategy is performed by (1) implementing a long-term rolling window backtest applied on the OMX, (2) a corresponding scenario analysis of the Swedish stock market including three dierent market environments, (3) an investigation of dierent in-sample pairs selection criteria and their respective impact, (4) an extended analysis of the strategy on the EUROSTOXX50 and DAX30 to support the robustness of the obtained outcomes. The empirical results suggest that the pairs trading technique is in fact protable and superior in terms of return and risk relative to its benchmarks. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/7370318
- author
- Lisev, Pavel LU and Schurer, Marc LU
- supervisor
-
- Lu Liu LU
- organization
- course
- NEKP03 20151
- year
- 2015
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- cointegration, pairs trading, market-neutrality, rolling window backtest, OMX
- language
- English
- id
- 7370318
- date added to LUP
- 2015-06-29 13:04:17
- date last changed
- 2015-06-29 13:04:17
@misc{7370318, abstract = {{The turbulent market environment experienced over the last decades has attracted the broad interest of institutional and retail investors towards non-directional and absolute return investment strategies. The scope of this paper mainly concerns the investigation of whether a pairs trading strategy based on the cointegration approach generates excess returns on the Swedish equity market or fails to meet initial expectations. This is enhanced by an assessment of the volatility exposure relative to an investment in the corresponding benchmark. In this research, a comprehensive analysis of the pairs trading strategy is performed by (1) implementing a long-term rolling window backtest applied on the OMX, (2) a corresponding scenario analysis of the Swedish stock market including three dierent market environments, (3) an investigation of dierent in-sample pairs selection criteria and their respective impact, (4) an extended analysis of the strategy on the EUROSTOXX50 and DAX30 to support the robustness of the obtained outcomes. The empirical results suggest that the pairs trading technique is in fact protable and superior in terms of return and risk relative to its benchmarks.}}, author = {{Lisev, Pavel and Schurer, Marc}}, language = {{eng}}, note = {{Student Paper}}, title = {{Pairs Trading: Evaluation of profitability and risks on the Swedish stock market}}, year = {{2015}}, }