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Pairs trading based on statistical variability of the spread process

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dc.contributor.authorBogomolov, T.
dc.date.issued2013
dc.description.abstractThis research proposes a new non-parametric approach to pairs trading based on renko and kagi constructions which originated from Japanese charting indicators and were introduced to academic studies by Pastukhov. The method exploits statistical information about the variability of the tradable process. The approach does not find a long-run mean of the process and trade towards it like other methods of pairs trading. The only assumption we need is that the statistical properties of the spread process volatility remain reasonably constant. The theoretical profitability of the method has been demonstrated for the Ornstein–Uhlenbeck process. Tests on the daily market data of American and Australian stock exchanges show statistically significant average excess returns ranging from 1.4 to 3.6% per month and annualized Sharpe ratio from 1.5 to 3.4.
dc.identifier.citationQuantitative Finance, 2013; 13(9):1411-1430
dc.identifier.doi10.1080/14697688.2012.748934
dc.identifier.issn1469-7688
dc.identifier.issn1469-7696
dc.identifier.urihttps://hdl.handle.net/1959.8/153436
dc.language.isoen
dc.publisherRoutledge
dc.rightsCopyright 2013 Taylor & Francis
dc.source.urihttps://doi.org/10.1080/14697688.2012.748934
dc.subjectapplied mathematical finance
dc.subjectquantitative trading strategies
dc.subjectarbitrage relationship
dc.subjectstatistical methods
dc.subjecttrading strategies
dc.titlePairs trading based on statistical variability of the spread process
dc.typeJournal article
pubs.publication-statusPublished
ror.mmsid9915909850101831

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