| Abstrakt: |
Pairs trading is a technique that is widely used in the financial industry and its profitability has been constantly documented for various markets under different time periods. Pairs trading can assure reasonably a risk free profit gaining. The most commonly used methods are distance method and cointegration method. This paper mainly uses ARMA-GARCH process to describe the marginal distribution of two variables, then uses copula function to formulate trading strategy, and finally applies this strategy to the Hong Kong stock exchange from 2019 to 2021. The empirical results show that for the top 20 stock pairs selected, the maximum returns of distance and cointegration methods are 3.39% and 10.95% respectively, but our pairs trading strategy can have a return of 26.41%. At the same time, we tested the strategic returns under different trading thresholds. When the threshold combinations of opening and closing positions are (0.8,0.2) and (0.5,0.5), the cumulative return of 20 stock pairs reaches the maximum, which is 81.99%. [ABSTRACT FROM AUTHOR] |
