Advanced

A Wider Perspective on Pairs Trading

Broel-Plater, Jan LU and Nisar, Khurram LU (2010) NEKM01 20101
Department of Economics
Abstract
Pairs trading is a statistical arbitrage strategy aimed at exploiting temporary divergences in assets that move together. By taking corresponding long and short positions upon divergences, profits can be made if the assets converge. In this study, the pairs trading strategy is applied onto a novel selection of non-equity assets, namely price indices, commodities and currencies. By letting pairs indiscriminately be formed from correlated assets, we examine the possibility of achieving positive excess return using a computerised trading implementation of the strategy. The trading yielded average six-month returns of 1.56 percent (p=0.000). Furthermore, the returns from pairs comprised of same-type and different-type assets were studied, but... (More)
Pairs trading is a statistical arbitrage strategy aimed at exploiting temporary divergences in assets that move together. By taking corresponding long and short positions upon divergences, profits can be made if the assets converge. In this study, the pairs trading strategy is applied onto a novel selection of non-equity assets, namely price indices, commodities and currencies. By letting pairs indiscriminately be formed from correlated assets, we examine the possibility of achieving positive excess return using a computerised trading implementation of the strategy. The trading yielded average six-month returns of 1.56 percent (p=0.000). Furthermore, the returns from pairs comprised of same-type and different-type assets were studied, but in this case no significant differences were found. (Less)
Please use this url to cite or link to this publication:
author
Broel-Plater, Jan LU and Nisar, Khurram LU
supervisor
organization
course
NEKM01 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
statistical arbitrage, Finance, Pairs trading, Non-equity assets
language
English
id
1632637
date added to LUP
2010-08-12 13:38:16
date last changed
2010-08-12 13:38:16
@misc{1632637,
  abstract     = {Pairs trading is a statistical arbitrage strategy aimed at exploiting temporary divergences in assets that move together. By taking corresponding long and short positions upon divergences, profits can be made if the assets converge. In this study, the pairs trading strategy is applied onto a novel selection of non-equity assets, namely price indices, commodities and currencies. By letting pairs indiscriminately be formed from correlated assets, we examine the possibility of achieving positive excess return using a computerised trading implementation of the strategy. The trading yielded average six-month returns of 1.56 percent (p=0.000). Furthermore, the returns from pairs comprised of same-type and different-type assets were studied, but in this case no significant differences were found.},
  author       = {Broel-Plater, Jan and Nisar, Khurram},
  keyword      = {statistical arbitrage,Finance,Pairs trading,Non-equity assets},
  language     = {eng},
  note         = {Student Paper},
  title        = {A Wider Perspective on Pairs Trading},
  year         = {2010},
}