Pairs-trading and spread persistence in the European stock market

Autor:	Ioannis Paraskevopoulos, Tao Tang, Isabel Figuerola-Ferretti
Rok vydání:	2018
Předmět:	040101 forestry Price elasticity of demand Economics and Econometrics 050208 finance Sharpe ratio 05 social sciences Pairs trade 04 agricultural and veterinary sciences computer.software_genre General Business Management and Accounting Accounting 0502 economics and business Econometrics Economics Mean reversion 0401 agriculture forestry and fisheries Portfolio Stock market Algorithmic trading computer Finance Industrial organization Spread trade
Zdroj:	Journal of Futures Markets. 38:998-1023
ISSN:	0270-7314
DOI:	10.1002/fut.21927
Popis:	In this paper, we adapt the demand and supply framework introduced by Figuerola‐Ferretti and Gonzalo (Journal of Econometrics, 2010) to illustrate the dynamics of Pairs‐trading. We underline the process by which a finite elasticity of demand for spread trading determines the speed of mean reversion and pairs‐trading profitability. A persistence‐dependent trading trigger is introduced accordingly. Applied to STOXX Europe 600–traded equities, our strategy exploits price leadership for portfolio replication purposes and delivers Sharpe ratios that outperform the benchmark rules used in the literature. Portfolio performance and mean reversion are enhanced after firm fundamental factor restrictions are imposed.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::f0f680abf8a34da5d92ff6b5451b7080 https://doi.org/10.1002/fut.21927 Zobrazit plný text záznamu Plný text ve formátu PDF Plný text ve formátu HTML
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