This paper compares the final profitability of a cointegration-based pairs trading strategy when pairs of stocks are pre-selected using seven different measures. Pre-selection matters, since the excess returns remarkably vary, in terms of both average and variability, depending on the metrics used. Differences in profitability by pre-selection metrics are retrieved even after considering commissions and cut rules, market impact, and a stricter definition of the Spread reversion to the equilibrium. Besides, the profitability of the pairs trading strategy is also found heterogeneous across the different pre-selection metrics considered in terms of exposure to the traditional risk-factors.

Brunetti, M. e R., De Luca. "Pre-selection in cointegration-based pairs trading" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2022. https://doi.org/10.25431/11380_1292044

Pre-selection in cointegration-based pairs trading

Brunetti, M.;
2022

Abstract

This paper compares the final profitability of a cointegration-based pairs trading strategy when pairs of stocks are pre-selected using seven different measures. Pre-selection matters, since the excess returns remarkably vary, in terms of both average and variability, depending on the metrics used. Differences in profitability by pre-selection metrics are retrieved even after considering commissions and cut rules, market impact, and a stricter definition of the Spread reversion to the equilibrium. Besides, the profitability of the pairs trading strategy is also found heterogeneous across the different pre-selection metrics considered in terms of exposure to the traditional risk-factors.
2022
Novembre
Brunetti, M.; De Luca, R.
Brunetti, M. e R., De Luca. "Pre-selection in cointegration-based pairs trading" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2022. https://doi.org/10.25431/11380_1292044
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1292044
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