Does Simple Pairs Trading Still Work?

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Financial Analysts Journal
July/August 2010 | Vol. 66 | No. 4 | 12 pages
Source: CFA Institute
Binh Do Robert Faff

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Abstract

Despite confirming the continuing downward trend in profitability of pairs trading, this study found that the strategy performs strongly during periods of prolonged turbulence, including the recent global financial crisis. Moreover, alternative algorithms combined with other measures enhance trading profits considerably, by 22 bps a month for bank stocks.

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Topics
Behavioral Finance
    :
  • Limits to Arbitrage
|
Portfolio Management
    :
  • Equity Portfolio Management Strategies
|
Quantitative Methods
    :
  • Correlation Analysis and Regression
  • ·
  • Time-Series Analysis
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