2014/12/23 by Mitsuaki Murota, Murota, Mitsuaki, Jun‐ichi Inoue +2
Decision Sciences · Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Financial Markets and Investment Strategies #Financial Risk and Volatility Modeling #Portfolio Management (q-fin.PM) #Stock Market Forecasting Methods #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.1412.7269
openalex publication_date 2014/12/23 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
We carry out a large-scale empirical data analysis to examine the efficiency\nof the so-called pairs trading. On the basis of relevant three thresholds,\nnamely, starting, profit-taking, and stop-loss for the `first-passage process'\nof the spread (gap) between two highly-correlated stocks, we construct an\neffective strategy to make a trade via `active' stock-pairs automatically. The\nalgorithm is applied to 1,784 stocks listed on the first section of the Tokyo\nStock Exchange leading up to totally 1,590,436 pairs. We are numerically\nconfirmed that the asset management by means of the pairs trading works\neffectively at least for the past three years (2010-2012) data sets in the\nsense that the profit rate becomes positive (totally positive arbitrage) in\nmost cases of the possible combinations of thresholds corresponding to\n`absorbing boundaries' in the literature of first-passage processes.\n