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Article: A single-stage approach for cointegration-based pairs trading

TitleA single-stage approach for cointegration-based pairs trading
Authors
KeywordsCointegration
Pairs trading
Power statistic
Return maximization
Risk control
Issue Date2018
PublisherAcademic Press. The Journal's web site is located at http://www.elsevier.com/locate/frl
Citation
Finance Research Letters, 2018, v. 26, p. 177-184 How to Cite?
AbstractPairs trading can be regarded as conditional mean reversion strategies. The conditions are usually imposed in two stages: Identification of pairs’ relationship and the opening (and closing) mechanism sequentially as a ‘pass or fail’ test. Nevertheless, as cointegration relationship is often not a ‘yes or no’ question but a ‘strong or weak’ one, dichotomizing the relationship through screening may not be optimal. This research presents a new single-stage approach to pairs trading based on a single ‘power statistic’. Its superiority in attaining better risk-to-reward ratios is demonstrated empirically in a large scale backtest study.1
Persistent Identifierhttp://hdl.handle.net/10722/261387
ISSN
2019 Impact Factor: 3.527
2015 SCImago Journal Rankings: 0.405
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorLAW, KF-
dc.contributor.authorLi, WK-
dc.contributor.authorYu, PLH-
dc.date.accessioned2018-09-14T08:57:20Z-
dc.date.available2018-09-14T08:57:20Z-
dc.date.issued2018-
dc.identifier.citationFinance Research Letters, 2018, v. 26, p. 177-184-
dc.identifier.issn1544-6123-
dc.identifier.urihttp://hdl.handle.net/10722/261387-
dc.description.abstractPairs trading can be regarded as conditional mean reversion strategies. The conditions are usually imposed in two stages: Identification of pairs’ relationship and the opening (and closing) mechanism sequentially as a ‘pass or fail’ test. Nevertheless, as cointegration relationship is often not a ‘yes or no’ question but a ‘strong or weak’ one, dichotomizing the relationship through screening may not be optimal. This research presents a new single-stage approach to pairs trading based on a single ‘power statistic’. Its superiority in attaining better risk-to-reward ratios is demonstrated empirically in a large scale backtest study.1-
dc.languageeng-
dc.publisherAcademic Press. The Journal's web site is located at http://www.elsevier.com/locate/frl-
dc.relation.ispartofFinance Research Letters-
dc.subjectCointegration-
dc.subjectPairs trading-
dc.subjectPower statistic-
dc.subjectReturn maximization-
dc.subjectRisk control-
dc.titleA single-stage approach for cointegration-based pairs trading-
dc.typeArticle-
dc.identifier.emailLi, WK: hrntlwk@hkucc.hku.hk-
dc.identifier.emailYu, PLH: plhyu@hku.hk-
dc.identifier.authorityLi, WK=rp00741-
dc.identifier.authorityYu, PLH=rp00835-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.frl.2017.12.011-
dc.identifier.scopuseid_2-s2.0-85044659952-
dc.identifier.hkuros290952-
dc.identifier.volume26-
dc.identifier.spage177-
dc.identifier.epage184-
dc.identifier.isiWOS:000444663700025-
dc.publisher.placeUnited States-

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