2024/01/26 by Eeshaan Dutta, Dutta, Eeshaan, Sarthak Diwan +3
Economics, Econometrics and Finance · #FOS: Economics and business #Financial Markets and Investment Strategies #Market Dynamics and Volatility #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.2401.14761
openalex publication_date 2024/01/26 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper proposes an algorithmic trading framework integrating Environmental, Social, and Governance (ESG) ratings with a pairs trading strategy. It addresses the demand for socially responsible investment solutions by developing a unique algorithm blending ESG data with methods for identifying co-integrated stocks. This allows selecting profitable pairs adhering to ESG principles. Further, it incorporates technical indicators for optimal trade execution within this sustainability framework. Extensive back-testing provides evidence of the model's effectiveness, consistently generating positive returns exceeding conventional pairs trading strategies, while upholding ESG principles. This paves the way for a transformative approach to algorithmic trading, offering insights for investors, policymakers, and academics.