Trading in the Presence of Cointegration

Galenko, Alexander; Popova, Elmira; Popova, Ivilina

doi:10.2139/ssrn.1023791

Cited by 15 publications

(23 citation statements)

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“…() were cointegrated in the sense of Galenko et al . (), this notion is also applicable here. The authors demonstrate their strategy in a simulation study and in a small empirical application to selected securities.…”

Section: Time‐series Approachmentioning

confidence: 90%

“…Finally, they test nine different lag parameters, over which the return process is cumulated to a price time series. The latter is troublesome, considering that this parameter should be infinity based on their theoretical model (Galenko et al ., , p. 94). It is thus unclear, why they also experiment with short‐term values, such as five days.…”

Section: Cointegration Approachmentioning

confidence: 95%

“…In contrast, Galenko et al . () develop an active statistical arbitrage strategy based on a multivariate cointegration framework. Whereas correlation reflects short‐term linear dependence in returns, cointegration models long‐term dependencies in prices (Alexander, ).…”

Section: Cointegration Approachmentioning

confidence: 99%

“…However, Galenko et al . () perform extensive data mining. First, they apply their strategy to daily and weekly data.…”

Section: Cointegration Approachmentioning

confidence: 99%

“…Here, it is insightful to draw parallels to Galenko et al . (), suggesting an infinite time frame to accumulate returns. If the pairs of Do et al .…”

Section: Time‐series Approachmentioning

confidence: 99%

See 4 more Smart Citations

Statistical Arbitrage Pairs Trading Strategies: Review and Outlook

Krauß

2016

Journal of Economic Surveys

164

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This survey reviews the growing literature on pairs trading frameworks, i.e., relative-value arbitrage strategies involving two or more securities. The available research is categorized into five groups: The distance approach uses nonparametric distance metrics to identify pairs trading opportunities. The cointegration approach relies on formal cointegration testing to unveil stationary spread time series. The time series approach focuses on finding optimal trading rules for mean-reverting spreads. The stochastic control approach aims at identifying optimal portfolio holdings in the legs of a pairs trade relative to other available securities. The category "other approaches" contains further relevant pairs trading frameworks with only a limited set of supporting literature. Drawing from this large set of research consisting of more than 90 papers, an in-depth assessment of each approach is performed, ultimately revealing strengths and weaknesses relevant for further research and for implementation. Terms of use: Documents in

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Section: Time‐series Approachmentioning

confidence: 90%

Section: Cointegration Approachmentioning

confidence: 95%

Section: Cointegration Approachmentioning

confidence: 99%

“…However, Galenko et al . () perform extensive data mining. First, they apply their strategy to daily and weekly data.…”

Section: Cointegration Approachmentioning

confidence: 99%

“…Here, it is insightful to draw parallels to Galenko et al . (), suggesting an infinite time frame to accumulate returns. If the pairs of Do et al .…”

Section: Time‐series Approachmentioning

confidence: 99%

See 3 more Smart Citations

Statistical Arbitrage Pairs Trading Strategies: Review and Outlook

Krauß

2016

Journal of Economic Surveys

164

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Pairs trading and outranking: The multi-step-ahead forecasting case

Huck

2010

European Journal of Operational Research

108

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Picking up the pennies in front of the bulldozer: The profitability of gilt based trading strategies

Quinn

Hanna

MacDonald³

2018

Finance Research Letters

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We develop a simple cointegrated pairs trading strategy, including automatic risk control and adjustment for short-selling costs. We applied the strategy to the previously untested and highly liquid market for gilt futures. Profitability is exploited through the mean reversion in the relationship between long and medium gilt futures, and between medium and short gilt futures. Results show the potential for arbitrage profits exists, even using a relatively unsophisticated model, particularly between long and medium gilt futures.

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Trading in the Presence of Cointegration

Cited by 15 publications

References 0 publications

Statistical Arbitrage Pairs Trading Strategies: Review and Outlook

Statistical Arbitrage Pairs Trading Strategies: Review and Outlook

Pairs trading and outranking: The multi-step-ahead forecasting case

Picking up the pennies in front of the bulldozer: The profitability of gilt based trading strategies

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