Abstract:Statistical arbitrage dynamics is driven by a stationary, autoregressive process known as mispricing. This process approximates the value in time of a portfolio weighted equally to the elements of a cointegration vector of the log-prices processes of related instruments. Statistical arbitrage involves taking either long or short positions on a portfolio according to predictions of mispricing. This paper offers a theoretical analysis of cointegration testing under the conditional heteroscedasticity of the innov… Show more
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