Testing the efficient market hypothesis in Latin American stock markets

Sánchez-Granero, M.A.; Ponguillo, Karen Andrea Balladares; Ramos-Requena, José Pedro; Segovia, Juan Evangelista Trinidad

doi:10.1016/j.physa.2019.123082

Cited by 37 publications

(24 citation statements)

References 48 publications

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“…For testing the results through the different models introduced in this paper, we will use the components of the Nasdaq 100 index technological sector (see Table A1 in Appendix A),for the period between January 1999 and December 2003, coinciding with the "dot.com" bubble crash and the period between January 2007 and December 2012, this period coincides with the financial instability caused by the "subprime" crisis. These periods are choosen based on the results showed by Sánchez et al [9].…”

Section: Resultsmentioning

confidence: 99%

“…Developed market price series usually show only short memory or no memory whereas emerging markets do exhibit long-memory properties. Following this line, in a recent contribution, Sanchez et al [9] proved that pairs trading strategies are quite profitable in Latin American Stock Markets whereas in Nasdaq 100 stocks, it is only in high volatility periods. These results are in accordance with both markets hyphotesis.…”

Section: Introductionmentioning

confidence: 92%

“…Elliott et al [27] used Markov chains to study a mean reversion strategy based on differential predictions and calibration from market observations. The mean reversion approach has been tested in markets not considered efficient such us Asian markets [28] or Latin American stock markets [9]. A recent contribution of Ramos et al [29] introduced a new methodology for testing the co-movement between assets and they tested it in statistical arbitrage.…”

Section: Introductionmentioning

confidence: 99%

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Some Notes on the Formation of a Pair in Pairs Trading

2020

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The main goal of the paper is to introduce different models to calculate the amount of money that must be allocated to each stock in a statistical arbitrage technique known as pairs trading. The traditional allocation strategy is based on an equal weight methodology. However, we will show how, with an optimal allocation, the performance of pairs trading increases significantly. Four methodologies are proposed to set up the optimal allocation. These methodologies are based on distance, correlation, cointegration and Hurst exponent (mean reversion). It is showed that the new methodologies provide an improvement in the obtained results with respect to an equal weighted strategy.

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 92%

Section: Introductionmentioning

confidence: 99%

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Some Notes on the Formation of a Pair in Pairs Trading

2020

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“…This measurement simply backs out the average implied correlation so that the IV of the basket equals the index IV. Through modification of the Markowitz portfolio variance equation (see Equation (6)) and assuming ρ = ρ i,j for i = j and i, j = 1, ..., N, the implied volatility can be expressed as average implied correlation (see [16]):…”

Section: Dispersion Foundation and Trading Rationalmentioning

confidence: 99%

“…Pairs trading, which in its plain form tries to exploit mispricing between two co-moving assets, is probably the most popular delta-one trading approach amongst relative value strategies. Several studies show that those procedures generate significant and robust returns (see [2][3][4][5][6]).…”

Section: Introductionmentioning

confidence: 99%

Dispersion Trading Based on the Explanatory Power of S&P 500 Stock Returns

Schneider

Stübinger

2020

Mathematics

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This paper develops a dispersion trading strategy based on a statistical index subsetting procedure and applies it to the S&P 500 constituents from January 2000 to December 2017. In particular, our selection process determines appropriate subset weights by exploiting a principal component analysis to specify the individual index explanatory power of each stock. In the following out-of-sample trading period, we trade the most suitable stocks using a hedged and unhedged approach. Within the large-scale back-testing study, the trading frameworks achieve statistically and economically significant returns of 14.52 and 26.51 percent p.a. after transaction costs, as well as a Sharpe ratio of 0.40 and 0.34, respectively. Furthermore, the trading performance is robust across varying market conditions. By benchmarking our strategies against a naive subsetting scheme and a buy-and-hold approach, we find that our statistical trading systems possess superior risk-return characteristics. Finally, a deep dive analysis shows synchronous developments between the chosen number of principal components and the S&P 500 index.

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Arbitrage Trading in Energy Markets and Measuring Its Risk

Nakajima

Hamori

2022

Kobe University Monograph Series in Social Science Research

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Testing the efficient market hypothesis in Latin American stock markets

Cited by 37 publications

References 48 publications

Some Notes on the Formation of a Pair in Pairs Trading

Some Notes on the Formation of a Pair in Pairs Trading

Dispersion Trading Based on the Explanatory Power of S&P 500 Stock Returns

Arbitrage Trading in Energy Markets and Measuring Its Risk

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