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An Empirical Evaluation of Pairs Trading in The Swedish Stock Market

Goodwin, Dominice LU and Stefanovski, Marjan LU (2014) NEKP02 20141
Department of Economics
Abstract
This thesis offers a study on the performance of two different pairs trading approaches,
the Distance Method and the Stochastic Spread Method implemented on the Swedish
stock market for the period 2005-03-01 to 2014-03-06. The thesis also expands in the
existing literature on the stochastic spread approach to pairs trading by proposing
a pair selection method and an alternative way of generating trading signals that is
applicable to this pairs trading method. The performance of these pairs trading methods
are evaluated in terms of the Sharpe ratio (w.r.t. a broad market index benchmark
portfolio) of the returns generated by the portfolios that are being constructed on the
basis of the trading signals that are generated from these... (More)
This thesis offers a study on the performance of two different pairs trading approaches,
the Distance Method and the Stochastic Spread Method implemented on the Swedish
stock market for the period 2005-03-01 to 2014-03-06. The thesis also expands in the
existing literature on the stochastic spread approach to pairs trading by proposing
a pair selection method and an alternative way of generating trading signals that is
applicable to this pairs trading method. The performance of these pairs trading methods
are evaluated in terms of the Sharpe ratio (w.r.t. a broad market index benchmark
portfolio) of the returns generated by the portfolios that are being constructed on the
basis of the trading signals that are generated from these pairs trading methods. The
results from this study suggest that the portfolios created by the two pairs trading
methods are likely to be able to deliver a better risk-return profile compared to a
comparable self financing portfolio that is driven by a broad market index. The results
also suggest that performance of these pairs trading methods has improved over time. (Less)
Please use this url to cite or link to this publication:
author
Goodwin, Dominice LU and Stefanovski, Marjan LU
supervisor
organization
course
NEKP02 20141
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Pairs trading, stochastic spread, minimum distance method
language
English
id
4689676
date added to LUP
2014-09-29 09:20:54
date last changed
2014-09-29 09:20:54
@misc{4689676,
  abstract     = {This thesis offers a study on the performance of two different pairs trading approaches,
the Distance Method and the Stochastic Spread Method implemented on the Swedish
stock market for the period 2005-03-01 to 2014-03-06. The thesis also expands in the
existing literature on the stochastic spread approach to pairs trading by proposing
a pair selection method and an alternative way of generating trading signals that is
applicable to this pairs trading method. The performance of these pairs trading methods
are evaluated in terms of the Sharpe ratio (w.r.t. a broad market index benchmark
portfolio) of the returns generated by the portfolios that are being constructed on the
basis of the trading signals that are generated from these pairs trading methods. The
results from this study suggest that the portfolios created by the two pairs trading
methods are likely to be able to deliver a better risk-return profile compared to a
comparable self financing portfolio that is driven by a broad market index. The results
also suggest that performance of these pairs trading methods has improved over time.},
  author       = {Goodwin, Dominice and Stefanovski, Marjan},
  keyword      = {Pairs trading,stochastic spread,minimum distance method},
  language     = {eng},
  note         = {Student Paper},
  title        = {An Empirical Evaluation of Pairs Trading in The Swedish Stock Market},
  year         = {2014},
}